It was a busy time for California water issues last month when Trump visited the San Joaquin Valley, signed the Record of the Decision on the biological opinions which govern the operations of the state and federal water projects (along with another Presidential memo), which was promptly followed by the state filing of a lawsuit the next day. The conflict puts the voluntary agreements process into question, so not surprisingly, the voluntary agreement was top of the agenda the following week at the February meeting of Metropolitan’s Bay Delta Committee. After that, a brief update on the status of the State Water Project contract amendment for Delta Conveyance.

UPDATE ON THE VOLUNTARY AGREEMENTS

Bay Delta Initiatives Manager Steve Arakawa began the agenda item with the background on the voluntary agreement.

The State Water Resources Control Board is responsible for setting the water quality objectives for the Bay Delta and developing a water quality control plan. The State Water Board identifies the beneficial uses, such as fish and wildlife, municipal, agricultural, recreation and others, and then develops objectives to protect those beneficial uses along with a plan of implementation for achieving those objectives. The State Water Board is working on an update to the water quality control plan, a process they started ten years ago. The last time the plan was updated was in 2006.

“In the end, they are setting water quality control measures and flow requirements that can affect the water projects,” he said. “Where we are today, the State Water Board is essentially looking at how to protect the Bay Delta both with upstream water use and with export water use, as well as other measures.”

The extent of the watershed is significant – from the Feather River and the Sacramento River and their tributaries flowing from the north and the San Joaquin and its tributaries flowing from the south – all of those feed into the watershed and drain towards the Delta and then out to the San Francisco Bay.

In 2016, the Brown administration began negotiations on a voluntary agreement process as a way to move forward protections for the Delta and to avoid long term conflicts and litigation. The voluntary agreement process has now stretched across two governors’ administrations.

In December of 2018, the State Water Board voted to adopt new flow standards for the San Joaquin River tributaries based on unimpaired flows that would determine how much water would be required to remain in the river and flow out to the ocean as Delta outflow.

“Unimpaired flow is an accounting mechanism,” said Mr. Arakawa. “It’s not really necessarily a reflection of what would have occurred under natural conditions when many years ago, maybe the native fish were in better condition. It’s really just accounting for with the river system we have, if you took away the dams, how much water would there be available to flow to the ocean.”

The voluntary agreement is a 15-year agreement that is intended to be an alternative to the State Water Board’s proposal. It would become part of the water quality control plan for implementing the objectives for protecting the beneficial uses. If agreed upon, there could be early implementation actions – possibly even as soon as this year, he said.

Mr. Arakawa noted that even if the voluntary agreements do come together, the State Water Board process would still take some time as they would need to review different alternatives besides the voluntary agreement and go through a public process to select what they feel best protects the system.

The voluntary agreement provides a comprehensive framework and brings together a number of parties that would be a part of it, from both upstream water uses and water exporters.

“It would allow for those parties to be complying with the State Water Board requirements while the non-signatories, those who are not part of the voluntary agreement, would be at risk,” he said. “The State Water Board could still pursue actions on those who are not part of the voluntary agreement to require them to take certain actions to meet objectives.”

Since the original framework was presented in December of 2018, the Secretary of Natural Resources, the Secretary of Cal EPA, and the Secretary of Agriculture have been working with the water users and the NGOs to refine the framework and come to agreement. There are still a few details to be finished, but a lot of work has been done to this point, he said.

The voluntary agreement framework is a commitment to provide flow, habitat, funding, and adaptive management through a science program. The flow component would provide between 200,000 acre feet and 900,000 acre-feet of environmental flows (depending on the water year type) above the existing regulatory baseline through a combination of dedicated flows and water purchases. The framework also has identified 60,000 acres of new and restored habitat with several projects identified that would contribute towards that habitat. About$5 billion in new funding has been identified to implement the habitat and flows as well as the science program to help direct those resources to provide the most optimum way of implementing actions with the most amount of benefit.

In terms of the flows, the agreements would provide about 800-900,000 acre-feet of additional flow above the regulatory baseline in the dry, below normal, and above normal years; in critical years, a little over 200,000 acre-feet; and about 300,000 acre-feet in the wet years.

Funding for the program would come in part from surcharges on water deliveries. On the slide on the upper right, the charges are broken down into water purchases and science and governance. The Central Valley Project contractors and the State Water Project contractors would pay $8 per acre-foot and the science and governance would be $2 per acre-foot. The Central Valley Project contractors who have settlement agreements would pay $5 per acre-foot; Mr. Arakawa said that it depends upon where they are in the system and the charge per acre-foot is not necessarily applicable to all of those contractors.

Out of the $5.2 billion in funds needed over the next 15 years, the surcharges paid by water users would fund about $2.34 billion or 44% of the program. The federal government would provide $740 million or 14%, from existing authorities such as Cal Fed, or other future authorizations. The remainder, $2.2 billion, would come from the state with a large portion of that coming from a large portion of unappropriated bond funds from measures such as Prop 1 and Prop 68. Future bonds could also be utilized to add to that, or possibly appropriations from the general fund.

The funds would be used to fund water purchases, the science program, and habitat restoration.

The framework sets up a governance approach with decision making process and a science and adaptive management program to make sure the funds are being spent in the most effective manner. The framework also sets up a governance approach that integrates parties beyond state and federal water agencies that would strategically deploy flows and habitat, implement a science program, and develop strategic plans and annual reports. There would be a comprehensive science program guided by structured decision-making processes and an adaptive management program to make sure the funds are being spent in the most effective manner. The adaptive management program would perform specific experiments to test specific outcomes, learn from those experiments, and facilitate a collaborative and transparent process for making decisions on how to move forward.

Mr. Arakawa noted that they have a bit of a head start on the science and adaptive management program, since the Collaborative Science and Adaptive Management Program was implemented after the federal court decisions around 2010-2012.

“I think the strategic decision making from structured decision making processes provides a lot of opportunity and optimism for making sure that these decisions are producing good results,” he said.

The next steps are to continue refining the framework and submitting that to the State Water Board as an alternative to their process, and to consider what early actions might be done, consistent with all the applicable laws, that could help accelerate the improvement in the Delta.

CA ENDANGERED SPECIES ACT PERMIT FOR THE STATE WATER PROJECT

Mr. Arakawa acknowledged a lot has happened in the past week, with Trump’s signing the Record of Decision last week that allows for implementation of the new federal biological opinions, and the state’s lawsuit challenging those new biological opinions puts a lot into question. The previous biological opinions had been in place since about 2008-09 for Delta smelt and various species of salmon and steelhead.

Up until now, the state has utilized a consistency determination with the federal biological opinions on the rules for how to operate under the California Endangered Species Act, but they recently decided they would seek state permits separately from the federal process. That permit application was submitted to the Department of Fish and Wildlife. They are expecting to get an updated permit sometime in March.

“Then you would have the federal biops in place and the state endangered species permits, and the key thing is how do they work together,” he said. “Are they consistent with each other or are they very significantly different? I think that’s key to understanding how all of this fits together.”

The state of California has filed litigation; the parties include Natural Resources Agency, Cal EPA, State Department of Food and Agriculture, and the Attorney General’s office. The defendants are the Secretary of Commerce, Secretary of the Interior, the National Marine Fisheries Service, the US Fish and Wildlife Service, and the Commissioner of Reclamation.

“The lawsuit is challenging that the federal biological opinions are not sufficient to provide environmental protection to the species,” he said. “What that means now is with the implementation of the new federal biological opinions, what will the State Water Project be required to meet, given the state ESA? We know we have in the upcoming month or so, the state setting those standards under the CESA, and as all of the parties have been working on voluntary agreement to help formulate how the State Water Board requirements would met in the future, if the State Water Board were to go down that path of selecting the voluntary agreement alternative, how do they all fit together? and do we have a coordinated way of protecting the Delta, providing coordinated operations among the water projects and then also with water users upstream tributaries? So quite a bit that’s still in play and a bit uncertain.”

Mr. Arakawa noted that there’s a lot to lose if the voluntary agreement fails; it would likely trigger different types of litigation and regulatory conflicts that would extend years in the court system.

“There’s a lot to be lost if we aren’t successful in trying to deal with these issues,” he said. “What we have in front of us as a way to strive for voluntary agreement amongst the parties.”

GENERAL MANAGER JEFF KIGHTLINGER ADDS …

General Manager Jeff Kightlinger said that the voluntary agreement package is the best package that he has seen in his entire career. “It’s the most comprehensive, the most complete, the most thorough package,” he said. “It has the most parties north and south of the Delta, it brings in the rice farmers from far up north, and it brings in the operations of both reservoirs. South of the Delta, the State Water Project contractors and Central Valley Project contractors are engaged. There are a number of NGOs still at the table, still trying to bring this to closure.”

“Endangered species permits look at the take of species and adverse modification of habitat, so it’s pretty narrow and it’s a very blunt instrument,” he continued. “It’s only looking at those two things. A water quality control plan is really only looking at water quality, so neither the State Board nor the fish and wildlife agencies really have the tool to direct funding for science. They can’t do that. They can do a little bit of habitat when they can demonstrate there’s modification but they can’t get you to build large scale habitat at the scale of the types of things we’re talking about doing – those things can only be achieved if the parties agree to do them voluntarily.”

“What we’ve brought to the table is the state and federal water contractors voluntarily taxing themselves so there will be a steady revenue stream,” continued Mr. Kightlinger. “When the state does things, sometimes they get money from the general fund, sometimes they don’t. The money dries up. We all know that process. And usually they use bond funds, but bond funds are to build capital projects, they don’t do O&M; they don’t fund ongoing science. So by us agreeing to fund this ever year to the tune of over $2.5 billion for the next 15 years, there would be dedicated science and 60,000 acres of habitat. So this is, by far and away, is the most complete package I’ve seen in my entire career.”

All the substantive pieces, like the funding, the science, the governance, and the habitat have all been agreed on, the targets have been set, he said. The issues preventing them from reaching agreement are thorny legal issues like how to harmonize the federal and state permits with the endangered species act and then build on top of it through the State Board process.

“At the same time, we need those permits, those biological opinions,” Mr. Kightlinger continued. “A lot of people seem to think there’s the state ESA that applies to the state project and the federal ESA for the federal project – no, we have to comply with federal law. That is our permit to run the State Water Project; that is our permit that has now been sued.”

Last week, Trump signed the Record of Decision and immediately the state filed a lawsuit on them to in effect, block the State Water Project’s operating permit, he said. The state’s permit for the State Water Project under the California Endangered Species Act is a temporary permit; a final permit is expected mid-March.

“In the past, the permits have been essentially identical for the state and federal projects, and that’s really important, because these two massive projects really have to harmonize their operations,” said Mr. Kightlinger. “We’re looking at a scenario now where we may have very different state and federal permits, in which case, we will be looking and probably going into discussion with our board and the State Water Contractors about what’s going to happen.”

The State Water Contractors have voted to intervene in the state’s lawsuit, so it’s the beginning of the litigation process. Mr. Kightlinger pointed out that this brings the Department of Justice and the Attorney General’s office into the water discussions.

“The hope was that we were going to complete the biological opinions and the California ESA permit and then build on that with the voluntary agreements which were going to supply all those extra values, and that would have been satisfactory for all the regulatory agencies,” Mr. Kightlinger said. “That’s still our hope and we’re still working aggressively towards doing that. It’s unclear whether or not we will have the engagement of the federal government to do that. It’s obviously now moved into a highly charged legal and political climate, and that’s unfortunate because this is intended to be a scientific process, not a political process. It’s unfortunate the litigation was filed, it’s unfortunate the way this has all been framed.”

Mr. Kightlinger said that in spite of all of that, they are still continuing to push for getting the voluntary agreements done and hopefully the state and federal governments would be able to settle the lawsuit, in which case they’d be bringing those voluntary agreements to the Board, but the chances of that happening have gotten a lot more difficult as of last week, he said.

“We intend to certainly try through March,” said Mr. Kightlinger. “If we don’t, we’ll be teeing this up for a closed session at our March board, and we’ll have to decide … does Metropolitan want to intervene. I’m not exactly sure what side we’d be intervening on, we’d have to think that through, and whether or not there is going to be potential litigation on the state permit that we haven’t seen yet. So a lot of complicated decisions. In the meantime, we are still trying to push forward and get at least this MOU drafted and finalized with the differences of how to operate the two projects and at least provide an opportunity for the state and federal governments, if they wish, to settle this out and then adopt these voluntary agreements.”

Assistant General Manager Roger Patterson said that we have to find a way for the state ESA and the federal ESA to work together because the projects’ operations are coordinated operation by law, so that has to be figured out.

“This voluntary agreement approach is the best, smartest way to move forward, and these are linked,” said Mr. Patterson. “I think there’s plenty of space for them to work out their difference. We’re pretty familiar with that they are. … Time is of the essence, because the longer you proceed once litigation is filed .. the more entrenched people become. If we do that, I’m confident we can land the voluntary agreement. People fought long enough, they are ready to come together on the voluntary agreement. I think we can, if we can get these permits coordinated in a way that’s compatible with the voluntary agreement.”

DISCUSSION HIGHLIGHTS …

Director Hogan asks about the MOU.

Mr. Kightlinger said that the MOU would be between the state and federal government about how they would operate the federal biological opinion and the state endangered species permit to harmonize the two. “If they are able to enter into that sort of MOU, I’m confident that we, the contractors, working with other people can do the voluntary agreements. We’re 99% done on getting all those dozens of parties in there.”

Director Russell Lefevre noted that Westlands and the rest of the Central Valley contractors said they would drop out of the voluntary agreements if the state sued. Presumably there’s a way around that. How has that been working?

“It’s only been a week,” said Mr. Kightlinger. “We’re still in discussions, Westlands and the other Central Valley contractors are still part of the discussion. I think really it gets down to the state and federal government. If they can reach agreement on how to do this, I think the contractors are there. If they can’t reach agreement, then it’s not going to happen.”

Another director asked if Mr. Kightlinger anticipated that the CESA permit for the State Water Project would be increasing diversions from the Delta as compared to the prior biological opinons.

“I don’t know necessarily what we can expect from the state permit,” said Mr. Kightlinger. “One of the challenges we would hope though is they wouldn’t necessarily be a lot different than the federal permits because it’s pretty important that the two projects be harmonized. If you have them very different, then we would think you were shifting a regulatory burden away from federal contractors to state contractors, and that we would be picking up the burden and that’s something we wouldn’t think appropriate. We’re hoping that the two are harmonized as to which would generate more outflow or more diversion. That’s a modeling exercise and it’s not entirely clear. I don’t think frankly there’s that much difference.”

“One of the ironies is in a year like this one, we’re right now in a below normal trending about to slip into a dry year in 2020,” he continued. “Frankly none of these things make any difference. Once we get to a dry year, there’s really nothing to work with and whether you use D 1641, the 2008/09 biops, the 2020 biops, it’s not going to make any difference in terms of the actual operations and water supply. We’re sitting at 15% on the two projects diversions and maybe we’ll bump up a little as the year goes by, but for this year, it’s frankly not going to make any difference at all operationally.”

UPDATE ON THE STATE WATER PROJECT CONTRACT AMENDMENT FOR DELTA CONVEYANCE

In the next agenda item, Mr. Arakawa gave an update on the Delta conveyance project, which yielded no new information than what was in this update posted last week, and so that part is not covered. However, Mr. Arakawa did update the committee on where things are at with the negotiations between the contractors and DWR over the Delta conveyance contract amendment.

Back when the negotiations with DWR were over Cal Water Fix, part of those negotiations included both the scope of water transfers that could occur under a contract amendment and then also how Cal Water Fix costs would be allocated.

“At the time, the way the allocation would have worked with that particular snapshot in time was that all south of Delta contractors would be paying for Cal Water Fix, but then there could be transfers between individual contractors to allocate what costs and benefits each contractor was interested in pursuing,” said Mr. Arakawa. “So in their State Water Project contract, everyone south of the Delta would be billed, but then they would have the opportunity to use transfer mechanisms to get the benefits they would be looking for from the Delta conveyance or Cal Water Fix at the time.”

“An agreement in principle reached,” he continued. “Because the water transfer approach back in 2018 ran into some road blocks, there was an effort to see if a contract amendment could be negotiated where each individual contractor could amend their contract to be a participant or non-participant. You could opt-in for your contract amount or opt out and get zero benefit from the project.”

“So in November, we had an agreement in principle where a large share of the Table A contract amount, about 92%, was in support of the agreement in principle, but there was about 8% of the Table A and a number of small contractors, I think all in total, about 12 or 13 had problems with the agreement in principle, so DWR determined that the agreement in principle was not workable given how they foresaw problems in implementing the project under two separate agreements, one for participants and one for non-participants. The scope of that agreement amendment was how do the participants assure that the benefits they are investing in would go to them and the non-participants interest was how do we make sure that our base State Water Project amount that they’ve been getting isn’t impacted negatively.”

“Now, the Department has basically come back and said, the other approach doesn’t work and they provided a sixth offer which was several weeks ago,” Mr. Arakawa continued. “The sixth offer basically said they had the authority to bill everybody to move forward with the project, and this offer would allow for those participants that are not interested in the benefits of the project to opt-out of the project. In receiving that sixth offer, the contractors have had several discussions and have raised concerns on both sides, the participant side and the non-participant side, because of the lack of detail in this sixth offer.”

“For the participants side, detail that they were looking for that would assure they would get benefits; on the non-participants side, a lacking of detail that they are not going to be impacted, so this sixth offer made all the contractors concerned,” he said. “So that led to, since the Department is now saying everybody would pay, can we go back to some version of water transfers and how we could work out agreements between the parties on transferring costs and benefits, and maybe eliminate some of the road blocks that we had in the previous attempt in 2018.”

Mr. Arakawa said that is where they are today; he thinks there will be more in March and April. They are hopeful to have resolution in two or three months or maybe the first half of this calendar year.

“The type of issues they are evaluating the benefits of the new Delta conveyance and understanding, if there is a transfer, how do you value benefits, how do you value the article 21 water and the Table A water; other types of capacity and other benefits and then coming up with terms that work for two mutually agreeable parties to do a transfer. That transfer agreement would require CEQA process, so you’d have to still go through the environmental review process, and then DWR would take an action to support the water transfer, so that’s the basic approach. Further detail to come.”