Water Users Awarded Over $14 Million

Tulare Lake Basin Water Storage District v. U.S., 59 Fed. Cl. 246 (2003).

Stephanie Showalter, J.D., M.S.E.L.

In 2001, the U.S. Court of Federal Claims determined that certain California water users were entitled to compensation under the Fifth Amendment for the loss of contractually conferred water due to governmental restrictions imposed to protect the delta smelt and winter-run chinook salmon.1 In December 2003, following a separate trial on damages, the court concluded that the water users were owed damages in the amount of $13,915,364.78 plus interest.

Background
This litigation revolves around two water projects in California: the Central Valley Project (CVP), operated by the federal government through the Bureau of Reclamation (Bureau), and the State Water Project (SWP), operated by the State of California via the state Department of Water Resources (Department). Both projects draw water from the Sacramento-San Joaquin Delta (Delta) and deliver it to water users on a contract basis.

Due to rising concerns over increasing levels of fish kills in the CVP and SWP pumping stations in the late 1980s, the National Marine Fisheries Services (NMFS)initiated an Endangered Species Act (ESA) consultation with the Bureau and the Department in 1991. On February 3, 1992, the Bureau closed the Delta Cross Channel gates, the gates which divert the water from the Sacramento River toward the pumping stations, to protect the out-migration of the juvenile salmon. A Biological Opinion (BO) issued by NMFS on February 14, 1992 formally recommended that the gates remain closed. Fish kills continued to increase and in May 1993, the U.S. Fish and Wildlife Service (FWS) issued another BO instructing the SWP pumping plant to reduce pumping “when large numbers of larval and juvenile delta smelt appear at the Federal and State fish screens.”2

Tulare Lake Basin Water Storage District, Kern County Water Agency, Hansen Ranches, Lost Hills Water District, and Wheeler Ridge-Maricopa Water Storage District (Plaintiffs) were entitled to two categories of water under their contracts with the Bureau and the Department. The plaintiffs were entitled to an annual entitlement, called “Table A water,” and, when available, Article 21 water. Article 21 water is basically surplus water - “water in excess of the amount required to meet the needs of the water project.”3 Due to the pumping curtailments imposed by the federal agencies, the plaintiffs were deprived of water deliveries required under their contracts.
The plaintiffs filed suit under the Fifth Amendment, arguing that the government took their property without compensation. In 2001, the Court agreed, holding that while the federal government could reduce water deliveries to protect endangered species, water users were entitled to compensation for any water lost under their contracts. A separate trial was scheduled regarding damages, in which the plaintiffs sought compensation in the amount of $65,697,866.

Amount of Water Lost
Before the court could determine the total amount of water lost, it had to establish when the governmental takings commenced. The plaintiffs argued that the federal government’s liability attached on February 3, 1992, the day the Delta Cross Channel gates were closed. The court disagreed. Prior to the issuance of the first BO on February 14, 1992, the Department’s role was voluntary. While the court recognized that the gates were closed in anticipation of a federal directive, the gate closure on February 3 was not actually compelled by a federal mandate pursuant to the ESA. Therefore, the 23,251 acre-feet of water lost before the February 14, 1992 BO was not the subject of a Fifth Amendment taking.

The February BO, however, was sufficient to confer liability on the United States. Although the BO did not explicitly mandate a gate closure, one of NMFS’ reasonable and prudent alternatives recommended that the Delta Cross Channel gates remain in the closed position from February 1 through May 1. This recommendation was essentially an endorsement of the actions taken by the Bureau and the Department. While the federal government is not responsible for actions taken by states on their own accord, it cannot “avoid responsibility for measures that, though initially implemented by the state, are nonetheless subsequently incorporated into the federal government’s ecological and hydrological regime.”4

Beginning in April 1992, therefore, any losses of contractual water deliveries were compensable. The court determined that the plaintiffs lost 114,635 acre-feet of Table A water in April 1992 and 120,892 acre-feet in 1994. The court also determined that the plaintiffs lost an additional 34,400 acre-feet of Article 21 water in 1993 and 59,967 acre-feet in 1994. In general, the “surplus” Article 21 water is allocated to contractors when (1) the San Luis Reservoir is full, (2) the contractor’s Table A allocations are otherwise being met, and (3) sufficient water exists to meet state water quality standards.5 The court found that these conditions were met in 1993 and in early 1994. Absent the pumping curtailments imposed under the ESA, the plaintiffs would have received Article 21 water in 1993 and 1994.

Value of the Water Taken
The plaintiffs were entitled to the fair market value (FMV) of the water lost. The court ruled that the FMV of the Table A water should be calculated based upon the prices of the Drought Water Bank during the years in question. The Drought Water Bank is a program established by the Governor of California and administered by the Department which obtains water from sellers north of the Delta for sale to water users in the south. The court held that the prices charged by the Drought Water Bank “reflected the going rate for water purchases at the relevant times.”6 The FMV of the Table A water, and therefore the value of plaintiff’s property interest, was $68.38 per acre-foot for 1992 and $66.34 per acre-foot for 1994.

The calculation of the value of Article 21 water was not so straightforward. Article 21 water allocations are only available during wet years or years in which the supply of water is greater than the demand. During such periods the Drought Water Bank, the best indicator of market value according to the court, is not in operation. The court, therefore, settled on the reasonable profit margin a seller could expect to realize on a sale as the proper value of the Article 21 water. The court endorsed the government’s expert’s calculations, based on a comparable sale of water by SWP, which identified a reasonable profit margin of $3 per acre-foot.

Final Calculations
Conclusion
The Federal Court of Claims determined that the water contractors in California, who had been deprived of their property due to governmental regulation under the ESA, were entitled to over $14 million in compensation from the federal government.

Endnotes
1. For an in-depth analysis of this decision, see Roy A. Nowell, Jr., Government Must Compensate for Water-Use Restrictions, Water Log 21:2, 4-5 (2001) available at http://www.olemiss.edu/ orgs/SGLC/21.2wateruse.htm
2. Tulare Lake Basin Water Storage District v. U.S., 59 Fed. Cl. 246, 249-50 (2003).
3. Id. at 248.
4. Id. at 255.
5. Id. at 256.
6. Id. at 263.

University of Mississippi