Audrey Patterson
Attorney, O’Laughlin & Paris, LLP
Feb. 6, 2014
On January 17, 2014, Governor Edmund G. Brown, Jr. declared a drought state of emergency (Drought Proclamation) and directed agencies to take action, including expediting water transfers, stating that “Voluntary water transfers from one water right holder to another enables water to flow where it is needed most.”1 Even if water will be available for transfer this year, short-term transfers may not occur in part because of added procedures that the Department of Water Resources (DWR) is imposing on transfer proponents.
In February 2013, DWR and the U.S. Bureau of Reclamation, Mid-Pacific Region (USBR, collectively Agencies) released the “Draft Technical Information for Preparing Water Transfer Proposals” (Transfer Policies). The Agencies meant the Transfer Policies to “facilitate temporary water transfers,” also known as short-term transfers, which require conveyance through the State Water Project (run by DWR) or Central Valley Project systems (run by USBR).2 The Transfer Policies apply to short-term transfers involving: 1) stored water; 2) cropland idling/crop shifting; and 3) groundwater substitution.
When a transfer proponent seeks a short-term transfer, it files a petition with the State Water Resources Control Board (Board) seeking approval.3 The Board then provides notice, allowing for public comment or protest, generally for thirty days.4 If a party feels that the proposed transfer would cause injury to their legal use of water, a protest may be filed prompting a hearing process if the protest remains unresolved. This hearing process could take several weeks or even months to resolve the potential legal injury. In the case of short-term transfers, this type of delay may quite likely extend into or beyond the proposed transfer period, mooting the entire transfer.
The Transfer Policies list “information needed by DWR and [USBR] for the review of transfer proposals” for each type of short-term transfer.5 The Agencies assert that this “approval criterion” is necessary because it “pertains [to] the avoidance of legal injury.”6 The Agencies then use the approval criterion to create a “conveyance agreement” with the transfer proponent(s), meant to avoid alleged Agency injury.
If the parties cannot agree to terms for the conveyance agreement, the Agencies will file a protest to the transfer proponent’s petition, knowing this will likely stall the transfer for a period that will render the entire transfer worthless to the proponents. This delay highly incentivizes transfer proponents to settle for terms of a conveyance agreement that the Agency proposes, lest the transfer will fall through.
At the time the Agencies released the Transfer Policies in 2013, California had experienced a very wet December (149% of average), but the sixth driest January in 119 years of record.7 This set the stage for uncertain deliveries to state and federal water contractors. It turned out that 2013 was overall a dry year and placed a strain on reservoir storage. Because of these conditions, the Agencies could only allocate 35% of deliveries to state contractors and 20% to federal contractors. With such low allocations, many water agencies and districts looked to transfers from upstream suppliers for surplus water.
Also in response to the dry conditions and low allocations, Governor Jerry Brown issued an Executive Order to Streamline Approvals for Water Transfers to Protect California’s Farms (Executive Order) on May 20, 2013, directing the Board and DWR to expedite water transfer petitions.8 The most recent Drought Proclamation echoed and referenced this directive. The goal of the Executive Order was to create a more efficient process for water transfers. It made sense; willing sellers with a surplus of water would transfer water to willing purchasers to relieve parched irrigation districts and farms.
In many cases, short-term transfers need to use state or federal facilities to move transferred water; this is where the Transfer Policies came into play.9 DWR refused to enter into conveyance agreements without having the approval criterion, despite the fact that the approval criterion was above and beyond requirements found in California Water Code sections 1725-1732, which govern short-term transfers. So rather than streamlining the transfer process as directed by the Governor’s Executive Order, the Transfer Policies added more hoops for transferring parties.
Notwithstanding uncertainties involving the Agencies’ “authority” to “approve” short-term water transfers10 or the Agencies’ potential legal injury,11 whether the Transfer Policies are unenforceable underground regulations is questionable. Arguably, they are unenforceable.
“An underground regulation is a regulation that a court may determine to be invalid because it was not adopted in substantial compliance with the Administrative Procedure Act.”12
Government Code Section 11342.600 defines a regulation as a:
Rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure.
Government Code Section 11340.5(a) also states in relevant part:
No state agency shall issue, utilize, enforce, or attempt to enforce any guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, which is a regulation as defined in Section 11342.600, unless the guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule has been adopted as a regulation and filed with the Secretary of State pursuant to this chapter.
In other words, an agency cannot enforce a set of guidelines or require certain criterion unless they are first adopted as regulations pursuant to the Administrative Procedure Act (“APA”). Here, DWR prepared “technical information” establishing criteria that would direct its “approval” of short-term water transfers but did not seek review and adoption of the Transfer Policies as regulations.
Courts have drawn a two-prong test from these statutes to determine whether a rule is a regulation and therefore subject to APA requirements: (1) it must apply generally, and (2) it must implement, interpret, or make specific the law enforced or administered by the agency, or — and in this case — govern the agency’s procedure.13 The Transfer Policies arguably meet this two-pronged test and are therefore subject to APA requirements; however, since the Agencies did not abide by APA requirements, the Transfer Policies are unenforceable underground regulations.
A. The Transfer Policies and its requirements apply generally to all short-term transfers and not to any specific case.
For a regulation to be subject to the APA, an “agency must intend for its rule to apply generally, rather than in a specific case. The rule need not, however, apply universally. A rule applies generally so long as it declares how a certain class of cases will be decided.”14
The Transfer Policies state that “any transfer of non-project water requiring conveyance through Project Agencies’ facilities will require a ‘conveyance agreement.'”15 On its face, the Transfer Policies concede that it applies generally to all short-term transfers because “any transfer” requires a conveyance agreement based on the Transfer Policies’ approval criterion.
Additionally, the Transfer Policies declare how the general class of short-term transfers will be allowed: the approval criterion.16
B. The Transfer Policies govern how the Department of Water Resources will handle short-term transfers.
In determining if a rule is subject to APA requirements and procedures, the second prong asks whether the rule interprets or specifies the law, which is enforced or administered by the agency, or governs the agency’s procedure.17 In this case, the Transfer Policies govern DWR’s procedure in handling short-term transfers.
The Transfer Policies are clear as to what information (i.e. approval criterion) the Agencies require depending on the kind of short-term transfer a proponent seeks to achieve.18
The Agencies might argue that the Transfer Policies fall within the internal management exception to the APA requirements and procedures.19 This argument, however, would fail because courts apply this exception narrowly and reject its application when it involves “a decision-making process that implicates the interests of persons and entities outside the state agency.”20 The Transfer Policies contain approval criteria that the Agencies use to develop conveyance agreements with “entities outside the state agency.” The Transfer Policies therefore implicate those outside interests and the internal management exception would not apply.
Although there are clear arguments that the Transfer Policies are unenforceable underground regulations, it is unsurprising that no party has challenged the Agencies’ use of the Transfer Policies with the OAL21 or in court.22 Short-term transfers are meant to satisfy short-term goals — there is usually not enough time to invest resources to seek review of the Agencies’ process. There is also concern of long-term impacts and backlash in future proposed short-term transfers.
These issues are also not isolated to 2013 transfers. In October 2013, the Agencies released Draft Technical Information for Preparing Water Transfer Proposals, Information to Parties Interested in Making Water Available for Water Transfers in 2014. The policies for 2014 are identical to those in 2013. The Agencies still have not complied with APA requirements, rendering the 2014 approval criterion unenforceable underground regulations because the 2014 Transfer Policies predict how future transfers will be decided.23
The time and cost it takes to conform to the Transfer Policies preclude many transfers from happening because it simply does not make cost-benefit sense to transferring agencies. In operation, this keeps short-term transfers from happening in dry years which in turn keeps farmland fallowed; not even a Governor’s Executive Order or Drought Proclamation can change that.
1Governor Brown Declares Drought Emergency, Office of the Governor, January 17, 2014, found at http://cert1.mail-west.com/HyjrU/mc7rme/Hgtmyuzjan/lmtx021e/eH1nby5ygu/z021eHqvnq/x7k2zrvjlfzsbe?_c=d%7Cze7pzanwmhlzgt%7C120mmsywiem2x7k&_ce=1389978834.da623ff099209b503ef1fd10bd9c56c8, last visited January 30, 2014.
2Draft Technical Information for Preparing Water Transfer Proposals at 1.
5Transfer Policies at 9, 25, 40.
6A short-term transfer cannot injure any legal user of water. (Wat. Code, § 1725.); Transfer Policies at 2.
7Department of Water Resources, Climate Summaries, found at http://www.water.ca.gov/floodmgmt/hafoo/csc/climate_data/.
9It is worth noting that the “conveyance agreement” contemplated in the Transfer Policies is different from a Wheeling Agreement. The Wheeling Statutes, Water Code sections 1810—1814, require agencies to allow use of conveyance facilities for “bona fide transferor[s]” in exchange for fair compensation. (Wat. Code, § 1810.) Here, the Agencies state that the approval criterion and conveyance agreements are to ensure no legal injury will occur and do not relate to compensation for use of the facilities.
10Water Code Section 1727 expressly vests review and approval authority of short-term transfers with the Board, not the Agencies. (“The board shall review a petition for a temporary change… in accordance with this section.”)
11The Water Code states that legal injury cannot occur “during the proposed transfer,” but does not address alleged injury in the years after the transfer. (Wat. Code, § 1727, subd. (b)(1): “The board shall approve a temporary change if it determines … the proposed temporary change would not injure any legal user of the water, during any potential hydrologic condition that the board determines is likely to occur during the proposed change, through significant changes in water quantity, water quality, timing of diversion or use, consumptive use of the water, or reduction in return flows.” [Italics added.])
12Excelsior College v. California Bd. Of Registered Nursing (2006), 136 Cal.App.4th 1218, 1239, quoting Modesto City Schools v. Education Audits Appeal Panel (2004), 123 Cal.App.4th 1365, 1381.
13Clovis Unified School Dist. v. Chiang (2010), 188 Cal.App.4th 794, 800 citing Morning Star Co. v. State Bd. of Equalization (2006), 38 Cal.4th 324, 333-334.
14Clovis Unified School Dist. v. Chiang, supra, 116 Cal.App.4th at 803.
15Transfer Policies at 2 (italics added).
16Tidewater Marine, Inc. v. Bradshaw (1996), 14 Cal.4th 557, 571, citing Roth v. Department of Veteran Affairs (1980), 110 Cal.App.3d 622, 630, where the court stated, “[a] rule applies generally so long as it declares how a certain class of cases will be decided.”
17Clovis Unified School Dist. v. Chiang, supra, 188 Cal.App.4th at 800.
18See, e.g., Transfer Policies at 11 (Figure 2-2 Crop idling technical information submittal proposal checklist); 26 (Figure 3-1 Groundwater substitution transfer technical information—proposal checklist); and 40 (describing minimum information needed to evaluate the without-transfer operating conditions).
19Gov’t Code, § 11340.9(d). (“This chapter does not apply to … [a] regulation that relates only to the internal management of the state agency.”)
20California School Boards Ass’n v. State Bd. of Educ. (2010), 186 Cal.App.4th 1298, 1334.
21Gov’t Code, § 11340.5(b) (“If the office is notified of, or on its own, learns of the issuance, enforcement of, or use of, an agency guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule that has not been adopted as a regulation and filed with the Secretary of State pursuant to this chapter, the office may issue a determination as to whether the guideline, criterion, bulletin, manual, instruction, order, standard of general application, or other rule, is a regulation as defined in Section 11342.600.”)
22Gov’t Code, § 11350(a) (“Any interested person may obtain a judicial declaration as to the validity of any regulation or order of repeal by bringing an action for declaratory relief in the superior court in accordance with the Code of Civil Procedure.”)
23Tidewater Marine Western, Inc. v. Bradshaw (1996), 14 Cal. 4th 557. (“A written statement of policy that an agency intends to apply generally, that is unrelated to a specific case, and that predicts how the agency will decide future cases is essentially legislative in nature even if it merely interprets applicable law.”)