California Water Policy Seminar Series: A regulator perspective on balancing environmental and economic interests

The 2014 California Water Policy Seminar Series, presented by the UC Davis Center for Watershed Sciences and the law school’s California Environmental Law & Policy Center,brought together speakers from a variety of backgrounds to discuss how California’s water systems could work to meet both ecosystem and economic objectives.  In this presentation, two environmental law professors and the chief attorney for California’s water enforcement agency discuss the balancing of environmental and economic interests in California law and regulation.

The State Water Resources Control Board has been given the task of balancing the multiple uses of the state’s surface waters for economic purposes against environmental considerations, decisions that are complex and often controversial. Michael Lauffer, chief counsel for the State Water Resources Control Board, takes us inside the decision making process, discussing the legislative foundation of the State Water Board, and giving a glimpse into the decision making process and the factors that Board members must take into consideration when making their decisions.  Professor Brian Gray from UC Hastings College of Law then followed with a discussion of the reasonable use doctrine and the public trust doctrine, and how they apply in California water law.

But first, Professor Richard Frank from UC Davis set the stage with a brief overview of some of the state and federal environmental laws.

A brief overview of key environmental laws

Richard Frank_Page_03Richard Frank began by giving a quick tour of federal environmental laws. “The first major environmental law of the modern era, the National Environmental Policy Act (NEPA) was created by Congress in 1969,” he said. “It just establishes a disclosure requirement for federal projects, meaning federally funded projects, federally permitted projects, or projects like building of highway systems that the federal government takes on itself, to examine the potential environmental impacts of those proposed federal projects.  It’s purely a disclosure statute. It doesn’t have any real regulatory effect per se, but it does involve balancing.”

He explained that the most recent case involving NEPA was the case, “Winter vs. Natural Resources Defense Council,” in which the Supreme Court was asked to resolve a dispute between the United States Navy and environmental organizations, led by the National Resources Defense Council, over SONAR testing.  SONAR is a key military program for the nation’s defense, but it can also be disruptive and harmful to a variety of marine mammals, including whales. “It was the result of lack of accommodation between the Military, the Navy, and environmental interests that this case wound up in the Supreme Court,” he said. “The US Supreme Court, perhaps unsurprisingly, given the current make up and politics, Supreme Court ruled in favor of the Navy; that national security interests trumped those of the environment and marine mammals.”

Richard Frank_Page_05A more explicit balancing of environmental and non-environmental concerns occurs all the time under the National Clean Air Act, enacted by Congress in 1970, he said. The legislation was enacted to address the heavily polluted air basins around the country and to preserve those clean areas that do exist. “The act contains a number of provisions that attempt to reconcile those objectives of clean air to protect public health and the environment on the one hand while not unduly disrupting economic interests.”

This issue was before the Supreme Court about 13 years ago in the case, Whitman vs. American Trucking Association, in which the trucking industry challenged USEPA’s establishment of National Ambient Air Quality Standards that determine maximum amount of various types of pollutants, like carbon monoxide, hydrocarbons, and particulate matter sufficient to preserve and maintain public health, he said. The trucking industry challenged those standards on the grounds that they didn’t adequately take into account, economic and business interests and that the standards would have a deleterious, prejudicial effect on the economy of the country, in particularly the trucking industry. In this case, the United States Supreme Court held that when it comes to establishing national standards of air quality, the economic and business interests of the trucking industry, or any economic interest, are functionally irrelevant to the inquiry and establishment of these air pollution standards, he said. “That when it comes to the establishment of these air quality standards across the nation, it is protection of public health and safety, which is an overriding and exclusive criterion that ought to be applied,” he said.

Frank 2However, economic and business interests are not irrelevant when it comes to the Clean Air Act, he said, explaining that about three years later, another case went to the Supreme Court. The case involved the proposed expansion of the Red Dog Mine, located in a very remote area of the Arctic Circle. The process was going to use a lot of fossil fuel generators that were going to generate a lot more air pollution in this otherwise pristine area and the issue was what standard would be applied. “Congress and the Clean Air Act say that when you have a new or expanded industrial facility, companies have to use what’s known as best available control technology. And the question then before the court was what is the best available control technology,” Mr. Frank said. “And the court said, very clearly in this case, that’s where economics is important, because best available control technology assumes that economics, available technology, and the cost of that air pollution mitigation technology, is in fact relevant.”

Another federal law that people are more familiar with is the Endangered Species Act, enacted by Congress in 1973. “The Endangered Species Act primarily is known for the designation and the listing of those plant and animal species that are threatened or in danger of imminent extinction,” he said. “Once these animal species are listed, the federal regulators and private parties are required to do certain things or refrain from certain things in order to not to prejudice those creatures.”

Richard Frank_Page_09The most famous case ever under the Endangered Species Act was decided by the United States Supreme Court way back in 1978,” said Mr. Frank. “It was the first time the Endangered Species Act ever made its way up to the US Supreme Court, and much to the surprise of many people, including most of the members of Congress who voted for this law almost unanimously five years earlier, the court said, ‘We don’t do a lot of balancing under the Endangered Species Act, because Congress has said the preservation of threatened and endangered species is the highest priority.'”

The case involved the construction of Tellico Dam in Tennessee where a species known as the “snail darter” was discovered in the waterway, and at the time, was thought to be the only environment where the snail darter existed, he explained. “The scientists believed that the building and operation of the dam would spell the demise and extinction of the snail darter and the Supreme Court said, ‘Well, in those circumstances, the dam can’t be built.’ The snail darter wins and the environment wins.”

That’s not really the end of the story, though, because Congress same back and passed a law allowing the Tellico Dam to be built, and the snail darter was eventually found in another waterway, he said. “Since then, Congress adopted some measures to ameliorate the species über alles approach to the Endangered Species Act and brought it a little more flexibility,” he said, noting that the measures included the establishment of a ‘God Squad,’ a group of cabinet officials in the presidential administration that can theoretically come together and veto a listing of a species or regulatory action to protect the species, if that’s considered to be an over-arching or over-ridding military need.”

Richard Frank_Page_13There are state laws that to varying degrees, either accommodate economic and environmental interests or not, as the case may be, he said. “The California Environmental Quality Act is a more robust statute that has actually substance of the fact,” he said. “It requires, among other things, that when there are feasible mitigation measures to a proposed project, you have to undertake those available mitigation measures as long as they’re feasible. The term ‘feasible’ is actually defined in the statute as an alternative or a mitigation measure that is ‘capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, social and technological factors.’” He pointed out that this is an example of where the Legislature expressly incorporated a requirement for regulators to balance and accommodate economic and environmental interests.

Richard Frank_Page_15The Coastal Act is an environmental law adopted by the voters initially and made permanent by the California legislature in 1976. “This involves a news state agency that oversees development, preservation and permitting of structures and projects up and down California’s 1100 mile coastline,” said Mr. Frank. “It’s interesting because the goals of the Coastal Act are generally well known for remote public access and preservation of finite coastal resources, but the Coastal Act is the most powerful coastal protection statute anywhere, not just in this country but on the planet. It’s really unique to California. The strength of its program runs up against another part of the law, and that is the Fifth Amendment to the United States constitution, the so-called “Takings Clause” which prevents government at the federal state or local level from taking private property without paying the property owner just compensation.”

Mr. Frank said that before he became an academic, he represented the Coastal Commission in court on behalf of the California Attorney General’s Office. “This clash between private property rights protected or claimed to be protected under the takings clause of the Fifth Amendment, the police power in the state of California and the Coastal Commissions power to preserve the coast occurs all the time,” he said.  “Ultimately, the California legislature explicitly recognized this conflict by including the finding that the Coastal Act shall not be construed as authorizing the Coastal Commission to exercise its power to grant or deny a coastal permit in a manner which will take or damage private property for public use without payment of just compensation.  So there’s an explicit recognition in the Coastal Act that the Coastal Commission’s powers are not unlimited, that they are constrained and balanced and offset by the private property rights protected by the United States Constitution.”

Richard Frank_Page_19The most recent environmental statute passed is the Global Warming Solutions Act of 2006, which is also known as AB32, he said. “It’s an effort by which the California legislature basically told the California Air Resources Board to do whatever is necessary to roll back the level of California’s aggregate greenhouse gas emissions to 1990 levels by the year 2020. And the Air Resources Board is currently pursuing any number of regulatory strategies to accomplish that end.”

One of the most recent and controversial regulatory strategies adopted is the Cap and Trade Program. “It is a means by which the Air Resources Board and the legislature attempt to introduce some marketplace principles into an otherwise prescriptive system of greenhouse gas regulation by setting a cap on the number of the amount of greenhouse gas emissions that can be emitted in the state,” explained Mr. Frank. “Then certain amounts of emissions are allocated to different industries and businesses around the state, and then, using electric utilities as an example, that within the electric utility industry, if there are generating facilities and companies that can do this very effectively and can adopt the technology to reduce their emissions below the cap that’s established for their company, they are free to take those unused allocation emission credits and sell them to another company, that’s having more trouble reducing its greenhouse gas emissions below that cap. So, there’s a market for pollution credits.”

Richard Frank_Page_22He acknowledged it was a superficial and quick explanation, but pointed out that it’s an experiment here in the country, because this kind of market-based system has never been run at a degree of complexity and breadth of coverage of the California business sector as is contemplated under AB32. “We’re just starting out this program and we will see, but this is with a bow to the California Chamber of Commerce and business interest and a number of members of the legislature who thought, ‘We have to get away from the so-called command and control approach to environmental regulation and make these systems a little more flexible and a little more business friendly, by giving the regulated community a lot more flexibility in figuring out how they’re going to come into compliance with environmental laws’, in this case, the stringent greenhouse gas reduction levels mandated by AB32.”

So that’s an overview of some, but not all, of the environmental laws that you will be coming into contact with, he said. He then introduced the speakers.

First to speak is Michael Lauffer, Chief Counsel of the State Water Resources Control Board since 2005. Mr. Frank noted that in his capacity as Chief Council, Michael oversees some 40 attorneys. “What’s unique about the water board here in California, relative to water regulatory boards in the other 49 states, to this, my knowledge, it’s the only one that has authority, not only over water quality, that is pollution control law; it also administers California’s system of water rights,” he said. “The water rights system in California is being sorely tested now as a result of the drought that we’re all enduring.”

Next to speak will be Brian Gray, a professor of law at the University of California, Hastings College of the Law, in San Francisco. Mr. Frank noted that Brian Gray is a lawyer on behalf of the environment, arguing a variety of environmental and water resources cases before the California Supreme Court and the US Court of Appeals, as well as an expert on property law and litigation, and that he is also involved in the interdisciplinary work at the Public Policy Institute of California on a variety of water-related issues.

Michael Lauffer

Michael Lauffer began by saying he would try to avoid talking too much about the law, but would be using the legal backdrop for his clients, the state and regional water boards, to demonstrate how economics enters into the world of environmental decision making and environmental policy making.

We’re very fortunate here in California,” he said. “We have very robust environmental laws, and our water quality law in particular, the Porter-Cologne Water Quality Control Act, is one of the strongest environmental measures for water quality protection in the country, predating the federal Clean Water Act.”

What’s interesting to me about the Porter-Cologne Act is that while it is about water quality control and water quality protection, economics pervades it in many ways – in the foundational findings and policy direction that the legislature sets out for the water boards,” he said. “But at the same time there’s incredible discretion left to those often disparagingly referred to as the unelected decision makers – people who are very committed public servants trying to make decisions based on this broad frame work that the legislature has laid out.”

Lauffer 1The legislature talks about things like maximum benefit to the people and highest use and that the water boards need to consider economics as they go about recognizing the highest values of our waters, but there’s no cost benefit,” he said. “There’s no direction in terms of how the water boards, the principal water quality regulatory agencies, are to balance these competing interests. And that means that ultimately the decision makers who are in the role of making these incredibly important decisions that shape the quality of water in California and that shape the level of effort that businesses, communities and private citizens will have to undertake in order to achieve these water quality goals, those decision makers really have to step back and think holistically about the decisions they’re going to make, and they need to be informed by their staff in terms of what are the types of things, what are the costs, what are the benefits; both tangible and intangible of their decisions.”

The Porter-Cologne Water Quality Control Act is the principal law in California for governing water quality protection,” he said. “It starts out with a fairly specific pronouncement of what law should be or how the act should be construed.  The legislature specifically found and declared that activities and factors which may affect the quality of the waters of the state shall be regulated to attain the highest quality which is reasonable, considering all demands being made and to be made on those waters, the total values involved; beneficial and detrimental; economic and social; tangible and intangible.”

Crystal clear, right?” he said. “We are going to regulate, and that’s what we do. The water boards are regulators. We control people’s and business’ conduct. In particular with what we do, we control a lot of what cities and counties are supposed to do. And we’re supposed to regulate them for water to be at the highest value. But then it goes on, ‘which is reasonable’ and reasonable means all things to all people. And on top of that, it’s not just a matter of saying water quality cost, but we have tangible and intangible. So right off of the bat, the Water Boards know that they’ve got to look at everything when they make their decisions.”

Mr. Lauffer said this is a contrast the Federal Clean Water Act, which followed the Porter-Cologne Act by about three years. “When you read the first legislative findings and policy directions from the federal act, there’s very little in there that talks about these ideas of reasonable and value. Instead, the federal Clean Water Act’s implementing provisions have some fairly detailed prescriptions on the implementing federal agencies as to how they balance some of these things.”

The federal Clean Water Act starts up with broad dictates, one of those being that discharges of effluent water waste from sewage treatment plants, refineries, or other dischargers shall be eliminated by 1985. “That is an amazing thing when you stop and think about it,” he said. “Anybody who gets into the environment policy field knows we all flush the toilet, it all goes and gets treated but ultimately though, no matter what level of treatment, it’s going to go a surface water body somewhere most likely, and it still going to have pollutants in it. There is no way that congressional policy statement or legislative goal is ever going to be achieved in our lifetimes or any of our children’s lifetimes. But that’s how it starts and there’s no qualifying language on it. That’s how Congress wanted that act interpreted.”

Mr. Lauffer said the Clean Water Act has another pronouncement. “The discharge of toxic pollutants in toxic amounts shall be eliminated. Period,” he said. “Science is an incredible thing. We can find all sorts of pollutants that are toxic to us and they’re going to be present in pretty much every activity that humans are involved in and yet, Congress says, “We’re going to stop that.” And it doesn’t happen.”

It’s an interesting contrast between the economics of the two acts, he said. “The state act which broadly talks about all these different values that will need to be weighed and the federal act which has these really strong mandates, but thing goes on to the cabin then with a lot of economic baggage, if you will, along the way.”

California made a fundamental difference in terms of how it would go about balancing all those issues, he said. “The Porter-Cologne Act recognized that if you’re going to have these value determinations made, we wouldn’t want a single person – an administrator or director making these decisions somebody who serves at the pleasure of the governor and changes every four or eight years with term limits, and so instead in California, we ended up with a system of Water Boards.”

SWB regionsHe explained that there are nine regional water boards based on watershed boundaries around the state, and the people who serve on the boards have to be drawn from within those boundaries, he said. Originally, each member of the board had to have a particular background, such as agriculture, industry, or recreational water users, but now the board members just have to have diverse backgrounds. “The important thing is you have a mix of citizens and lay people, volunteer board members who are making these fundamental policy decisions between what’s necessary to protect water quality and what kind of costs are we willing to bear in order to make those decisions.”

The other interesting facet of the water boards is that the board member’s terms are staggered, he said. “Once they’re appointed by the governor and confirmed by the senate, they are, barring graft corruption, essentially assured of being able to serve out their terms,” he said. “And since they are staggered. This means as administrations change and new governors come in, there is a durability on the board that helps create and foster an expectation that the decisions it makes will be durable.”

The nine regional boards are overseen by a tenth board, the State Water Resources Control Board, he said, noting that the State Water Board has five full-time members with diverse backgrounds that are specified by statute. “These board members are implementing some of these same broad statutes and so it’s expected they’re going to have to balance these economic and environmental interests,” he said. “The members of the state board are really committed, reading through rafts of binders to prepare for board meetings, and they are educated by their constituents, as well approximately 1500 professional staff of the Water Boards.”

Under California’s Porter-Cologne Act, it’s essentially a two-step process for making decisions, he said. “We plan for our water quality, and then we permit or regulate to implement that plan, which is an important distinction because it determines when the economics come into it, and how they come into the decision making,” he said.

First, California adopts a Water Quality Control Plan or a Basin Plan, he said. “We identify what are the beneficial uses of our water. Do we use it for fish habitat, for endangered species? Do we use it for municipal water supply? All of the basins in the state are identified for the various uses that they have,” he said. “And then, we establish water quality objectives. These are essentially the levels of pollutants that can be present in a water body, and yet protect those beneficial uses.”

From that broad direction from the legislature, the state board has the charge to establish state policy for water quality control,” he said. “This is another level of regulation, and in establishing that state policy, all of those basin plans have to follow what the state water board says. There’s an important economic – environmental balance determination that the State Water Board made in 1968, and it said that for all of our waters, regardless of what their current uses are, regardless of whether or not we need to be especially protective of endangered species needs or the fact that it’s used as a source of municipal drinking water – regardless of those uses, we want to protect whatever high quality waters we have, and so we have a policy in the state of California called the non-degradation or anti-degradation policy which says whenever water is better than necessary to protect our beneficial uses, we are going to continue to protect it at that higher level. In other words, limit activities of humans that might pollute that water, and avoid further degradation of that water, unless it’s necessary for the maximum benefit of the people of the state.”

The second big step is the permitting or regulatory step, he said. “That is where the water boards make decisions to issue permits, issue clean up orders, and issue directives to businesses, municipalities, and to people that implement those plans and protect those beneficial uses, and that implement and reduce pollutants in order to comply with the water quality objectives.”

Lauffer 2Which of those steps you are in really determines when the economic considerations come into play and what flexibility and latitude the water boards have to consider economic interests, he said. “The foundational level of Porter-Cologne, the legislative policy, is to regulate for the highest value and highest water quality which is reasonable. And so when the water boards go about developing their Water Quality Control Plans or Basin Plans, that’s the first thing they look at. What’s going to be the highest level of water quality which is reasonable?

In the legislature, laws start off with broad policy pronouncements, but get into more details as you get into the finer points of the law, he said. So how do the water boards have to implement their basin planning authority and their permitting authority? “You might think much like the Clean Water Act at the federal level which provides much more detail as you get into it, that you’d see something similar when you get into the Porter-Cologne Water Quality Control Act, and the reality is, there isn’t much more there,” he said. “When the water boards are establishing their water quality objectives, what they need to look for is the reasonable protection of those beneficial uses, a value judgment that’s going to involve trading off how much effort is necessary to protect, say, an endangered species like the Delta smelt and the quality of water that it needs. And what is reasonable is going to change from time to time and place to place.”

The legislature has given a little more detail on making those determinations, he said. “It says that in the water quality control plans, the water boards shall develop water quality objectives and identify beneficial uses that in their judgment will insure the reasonable protection,” he said. “The legislature recognizes that human activity is going to impact adversely water quality, and the legislature said ‘It’s not a ground stop, but you need to make sure you’re not unreasonably affecting beneficial uses, and that you have to consider a variety of factors including but not limited to.  In other words, the water boards are going to have to go through a list of items, but they have a broader charge to consider anything else that they think is relevant to determining whether or not it is unreasonably affecting a beneficial use to allow certain pollutants.”

They look at the past, present, and probable beneficial uses, another value determination,” he said. “Sometimes we recognize because of human development, we may change why we are using particular water bodies. They may move more towards recreational. They may move towards your agricultural supply. The boards need to look in that future and make a reasoned determination as to what’s probable. They need to consider the conditions that can reasonably be achieved within a water body, and again, a value and economic determination as to what is likely to change. We know we can’t take everything back to pure water state, what can reasonably be achieved?

Economic considerations aren’t described, he noted. “We already know that the board should look at tangible and intangible. Economic considerations can mean everything from what’s it going to cost society to comply with this requirement to what is the economic benefit to society of having cleaner water? It’s a conversation though the water boards historically haven’t really been willing to engage in but economic considerations are as broad as that. Perhaps in order to implement these requirements you’re going to create new jobs because you’re going to require new technologies to be developed and deployed out into the field that engage high-skilled workers. All of this gets wrapped into the mix. And one other factor worth noting is that the boards need to consider housing needs within the region.”

Mr. Lauffer noted there were a few others in the mix when they develop the plans that aren’t really economic considerations, but it’s not an exclusive pot. “The legislature said you can go ‘including but not limited to.’ And so in all of those, the water boards need to go through their machinations and figure out ultimately what’s in the best interests of the people of the state in these requirements.” He noted that there is some overlay from the federal Clean Water Act, but none of it affects economics.

He said that the legislature gave the water boards a clean slate with the powers, and said it was their judgment what would be reasonable in a particular context. “What that means is that when the courts look at the decisions and other challenge the decisions of the boards, the courts are going to be very deferential to how the Water Board mixes all these different policy issues and ultimately comes out with a directive,” he said.

He noted that under the federal Clean Water Act, there are technology-based effluent limitations that US EPA dictates need to apply nationwide.  “In California, when the water boards are going about adopting regulatory requirements for a permit to a particular discharger, they have to first look at those policies and make sure they’re implementing them.”

For permits issued solely under the Porter-Cologne Act, there is an opportunity to go back and reconsider economic considerations, as well as the past, present and probable future beneficial uses and the need for housing. He then gave an example of how this plays out at the water boards, using the Sacramento Regional Waste Water Treatment Plant as an illustration.

I want to walk through the economic issues associated with recent requirements that were put on the City of Sacramento’s waste water treatment plant,” he said. “This is a plant that serves most of metropolitan Sacramento. It is at the largest inland discharger of waste water in the Central Valley. It’s actually one of the older plants from a perspective of the technology that it implements. … It does not have the more sophisticated treatment systems that we rely on elsewhere in the state.”

The permit was long overdue and the Central Valley Regional Water Quality Control Board had been in the process of reissuing the permit for nearly ten years. “One of the big concerns was that the Sacramento river is tributary to the Bay Delta estuary, home to a couple handfuls of endangered species that are either resident or migratory through the Bay Delta, and it is the hub of California’s water system and a portion or 25 million Californians rely on a portion of their drinking water coming from the Delta,” he said.

Delta outfallThe Sacramento treatment plant lies just a few dozen miles upstream for the Delta estuary and is technically part of the legal Delta by definition, he said. “Here was the huge treatment plant that had not been upgraded to deal with ammonia discharges,” he said. “Ammonia is a nutrient, but it’s also toxic to a lot of aquatic life if it’s present in high enough numbers. Luckily, the Sacramento river flowing right over the outfall for Sacramento Regional Waste Water plant dilutes most of the acute effect, but there is a huge scientific debate about what goes on further down in the Delta with these tens of thousands of pounds of nitrogen that was being discharged into the Sacramento River and the science on this was really uncertain.”

But there were real costs associated with upgrading that sewage treatment plant,” he said. “The Sacramento Regional Waste Water Facility came up with studies showing it was going to be $782 million just to deal with the nitrogen and ammonia effects of that treatment plant. The water boards looked at that issue and did their own studies and came up with a number that was about $200 million less. And so the question became, given all the debate over the Bay Delta Estuary and nitrogen in the Bay Delta Estuary, is a $782 million investment appropriate?

The water boards went about resolving this issue by holding multiple days of hearings over the course of years before the regional water board, he said. There was a lot of new scientific literature, some of it peer reviewed, some of it not, which was presented to the board members who ultimately had to make a policy call. “They looked at the determinations from their staff, they looked at some of the costs, and they looked around the state and saw most of the other facilities had already upgraded to deal with nitrogen removal.”

They also looked at something else. “They looked at what the rates were in the city of Sacramento,” he said. “It turns out their rates were about a third of the rates of the state-wide average, and even if you were to accept the district’s numbers, that would probably only drive their rates up to approximately the average around the state.”

It all came together in a fairly vociferous clash with the regional water board making a decision and ultimately the water board upholding that decision. “They looked at the uncertainty, and particularly looked at the fact that the Delta is such an vital resource for the state of California and vital to endangered species passing through it … There wasn’t any single magic bullet to fix the Delta, but there was a lot of concern that with the ongoing discharge and ongoing loading of nitrogen to the Delta system, that all the other efforts the state was putting into it would be for naught, because this could be a tipping point where just continuing to allow that nitrogen coming down into the system could ensure that the system would never recover.

The water board evaluated all of this and said, ‘It’s not worth the risk. We’re going to go ahead and understand our charge, exercise our authority, and regulate to the highest quality that we can. And we’ll continue looking at this issue of economic uncertainty or scientific uncertainty, but ultimately, we’re going to expect the rate payers of Sacramento to go ahead and pay for this,’” he said.

It was a very adversarial environment before the water boards, he said. “There were public water agencies serving state water project contractors, the people who benefit from State Water Project water, from the South Bay, Santa Clara, all the way down to south of Tehachapi in Los Angeles,” he said. “They are very concerned that all the investments they’re making to upgrade the plumbing will be for naught, if these discharges continued coming from Sac regional, so they’re heavily involved … very strong-willed people, very lawyered up, and very willing to throw as much as they can in terms of both the law and the science towards their view. Environmental groups who are very strong on protecting the environment were heavily engaged, and Sac Regional was working very hard to protect its rate-payers. And what happens when you get this clash on economic and scientific issues is often the truth lies somewhere in the middle of all of this, and it’s not always the best decision making framework.”

Freeport Bridge

Freeport Bridge

He said his reason for saying that is because the numbers coming from Sac Regional during the proceeding were $782 million for the upgrade.  He said the regional board came up with $400 million, but once the dust settled, Sac Regional came up with an alternative way that would cost ratepayers $300 million, which is less than what the regional board had calculated and half the cost of what Sac Regional had projected to the public prior to the event.

Mr. Lauffer said that his client agencies have about 1,500 employees, mostly engineers and scientists. “There is one economist in the entire 1,500 mix,” he said. “We used to have about eight to nine economists that would be able to support the activities of the board, but with budget cuts, those were some of the first to retire and go. This means you have a lot of people making decisions who are really making decisions with enormous economic considerations, and enormous economic impacts, but talking about economics and talking about what is the value of the fish, what is the value of an ecosystem, what is it gonna cost to actually build this plant? All of that is stuff that is outside of their wheelhouse. They are not always comfortable in that conversation and so often they shy away from it.”

From Mr. Lauffer’s perspective that’s a bad thing, because the Porter-Cologne Act requires a balancing of economic and environmental interests, and this means difficult decisions. “You can’t make those decisions unless you really step back, think and are willing to engage on all the different factors, because while it may be more difficult to put the value on an ecosystem, that doesn’t mean it’s not worth having the conversation, and Porter-Cologne expects that the water boards will have this conversation.”

Over the last several years, we have had a state board, the umbrella board that oversees the nine regional boards, that’s willing to engage and talk about some of these issues of economic costs and what are the values we’re trying to protect,” he said. “In doing so, they’ve launched initiatives. … They are trying to build up a set of tools known as the cost to compliance effort where, in all of the decision making that the water boards do, they will try to articulate what are costs involved and what are the economic benefits that we intend to get? It’s not going to compromise the protections that the boards are responsible for making, but it’s going to give their staff the tools to engage in this conversation and so ultimately, the decisions that they make will not only reflect the intent of the law, but can be more valuable and enduring to the people that the water boards serve.”

There is no magic answer,” he said, recalling how he had talked with a colleague about the presentation he would be giving here tonight about reconciling ecosystems, the environment, and the economy. “His response was, ‘Well, that’s an easy one. The ecosystem always loses.’ That’s a really depressing thought for somebody who’s a regulator and there’s unfortunately a lot of areas around the state and around the country where that has been true, but there have also been a lot of successes and California is leading the way in restoring some ecosystems that would have been written off just decades ago,” he concluded.

It was then Brian Gray’s turn to have the floor.

Brian Gray

Brian Gray began by saying he agreed with Michael Lauffer’s statement that managing the water system is really all about choices. “There’s nothing magical; there are very few overriding laws that trump everything else,” he said. “There are a couple, but for the most part these are value judgments that we have to make as a society. We make them through our legislature, we make them sometime through our courts, we make them principally through public demand choices, and we make them through regulatory agencies including the Delta Stewardship Council or planning and regulatory agencies such as the State Water Resources Control Board.”

Gray 1Mr. Gray said he also agreed that we’re not very good at identifying the economic and environmental factors. “We’re very good at litigating and arguing over those, but I think we haven’t developed a way to really address those issues in a reasoned and constructive way,” he said. “I also think that the environment and ecosystems do tend to lose out, although the water rights laws are really very heavily oriented toward protection of public rights and especially protection of ecosystems and environmental right, but there are notable success stories. … The protection of endangered species generally, I think is really a great success story despite the fact that we still have many species listed for protection under the statute.”

He then turned to the water rights system. “We have a very complicated system of water rights in California,” he said. “We have riparian rights which originated under the common law of England; they arise out of the ownership of real property that is adjacent to or along a river or a stream and they are regarded as being fundamental parts of the ownership of property. We also have appropriative water rights which were the rules and the law that the gold miners ultimately created to resolve disputes among themselves, first as to the ownership and location on land and then disputes over water. The appropriative rights system is now the dominant water rights system in California. It’s the system that allows water to be taken great distances from where it’s located in the Sierra Nevada in the coast range and move to the Bay area, the San Joaquin Valley and Southern California.”

We have prescriptive rights,” he continued. “We have pueblo water rights which originated in Spanish and Mexican law which are very important parts of Los Angeles’ water rights system, and there are federal reserved water rights that the federal government owns as a result of its ownership and stewardship of certain lands, such as national parks and national forests.”

It’s a very complicated system, but the most important thing about the water rights system is, again, it is a property rights system,” he said. “It creates property rights that are protected under the fifth and 14th Amendments to the US Constitution. Governments may not take water rights just as they may not take private property. Now what is it taking of property is also very complicated and the Supreme Court has kind of a vague malleable jurisprudence that we have to apply to determine what is a taking, but it’s important to remember that these are property rights. They were designed to encourage investment. They are designed to recognize aspects of real property ownership. They are designed to protect reliance interests of those who have invested.”

The water right is a unique form of property right,” said Mr. Gray. “It’s a very fragile and dynamic and malleable form of property right. It’s infused with a public interest. It is limited by Constitutional law and common law that requires that the owners of water rights, those who benefit from water, to exercise their rights in a way that comports with a public interest, is reasonable under certain circumstances, and does not unduly degrade the environment, fish, and ecosystems that may be affected by the use of water.”

The most important law that does that is the Reasonable Use Doctrine,” he said, noting that although the doctrine was placed into the state constitution in 1928 by an act of the voters, it was part of the appropriative system long before then,” he said. “What the Constitution says is that all water must be used and all water rights must be exercised in a way that is reasonable under the circumstances, and water must be applied to some beneficial use. Those requirements then again inject into this private property right very important aspects of the public interest.”

Gray 3Mr. Gray said that it’s difficult to say categorically what a reasonable use is, and he noted that the California Supreme Court said, ‘Although as we have said what is a reasonable use of water depends on the circumstances of each case, such an inquiry cannot be resolved in vacuo isolated from statewide considerations of transcendent importance. Paramount among these we see the ever increasing need for the conservation of water in the state, an inescapable reality of life quite apart from its expressed recognition in the Constitution.’

What are these statewide considerations of transcendent importance?” he said. “Again, we don’t really know but these are decisions that have to get made on a case-by-case basis situationally as influenced by a broader array of other laws but also as influenced by contemporary real world, on the ground, and in the water considerations. It will vary depending on whether we are in a situation where water is relatively abundant or if we are in a situation of drought such as today.”

So the questions that the Board, the courts, and the legislature have to confront are “Is it reasonable today to irrigate water by transporting water through underlying ditches, a long-standing practice? Is it reasonable to flood irrigate or furrow irrigate instead of sprinkler irrigating or drip irrigating? Is it unreasonable to grow certain types of crops that may require large amounts of water compared to other crops? Is it reasonable for people to hose down their driveways in times of drought? Fill swimming pools? Have outdoor landscaping? Use water to irrigate lawns?

These are all value choices, and the Board has a role in making those determinations, he said. “This is a very powerful doctrine because it not only says that water has to be used reasonably under current situation, but the definition of what is reasonable may change over time. The Supreme Court of California has been very candid and explicit in making the point that a practice of water use that may have been reasonable back in the day may no longer be reasonable because of changed circumstances, and those maybe changed hydrologic circumstances, technological developments, or demographic and economic change. It may be changes in public values as well.”

That’s very important because water rights are property rights, but the property right in water is limited by the reasonable use doctrine, he said. “That means that if the Board or if a court determines that a use of water today for whatever reason is an unreasonable use, well that means according to the California Supreme Court, that the property right in water no longer exists. It no longer extends to what is determined today to be an unreasonable use of water.”

“It’s a very powerful doctrine because it vests in the board and other agencies the authority to investigate current uses of water in light of their effects on the environment, their effects on other water users, and in light of long term planning goals for the state,” said Mr. Gray.  “But it also then allows them to regulate and make changes in current uses of water in order to fulfill the reasonable use mandate without violating the property rights. because again this is a very fragile form of property rights.”

Another fundamental aspect of the water right system is the public trust doctrine which originated in Roman law; it was part of the English common law, and was incorporated into American common law. Mr. Gray noted that all of the coastal states recognize the Public Trust Doctrine in their shorelines and beaches, and number of inland states recognize the Public Trust Doctrine with respect to their inland waters and the submerged lands beneath those waters as well.

California was the first state to incorporate the public trust doctrine into the water rights system. He noted that the California Supreme Court has held that all water rights and all uses of water are limited by the public trust doctrine and current uses of water must comport with the public trust. “Now the court has said that the Public Trust and the reliance interest in water, the economic use of water, must be accommodated under current circumstances, but the public trust serves to limit the use of water in particular circumstances.”

Mono Lake July 2011 #19

Mono Lake

The public trust doctrine originally protected navigation, commerce, and fishing, but in 1971, the California Supreme Court ruled on a very small obscure case out of Marin County. “The California Supreme Court just in one fell swoop held that the doctrine is also an ecological doctrine; it protects the environment and it protects ecological uses. That served as the basis for the California Supreme Court’s Mono Lake decision in the National Audubon Society case. It was in that case that the court incorporated the public trust doctrine into the water rights system and vested in the board as well as in courts the responsibility for determining that the current water use doesn’t unduly degrade the public trust, doesn’t unduly diminish public trust interest in fishing, in navigability, but also in ecological preservation of a resource.”

So the reasonable use doctrine and the public trust doctrine are two very important limitations on water rights, he said. “But as I said, basically whether a use is reasonable or whether a use can be accommodated with the public trust or might take precedence over the public trust in any individual circumstance is a judgment that has to be made based upon scientific considerations to some extent, economic considerations to some extent, technological considerations to some extent, and policy judgments,” he said.  “There are very few things in the law that function as a trump card – that are overriding considerations.”

We constantly have to make these choices based upon as good of information as we can develop in a particular setting, whether it’s a regulatory setting, whether it’s in a managerial setting, or in a litigation context, and there are some aspects of the law that give clarity to this,” Mr. Gray said. “The Delta Reform Act said that, ‘For the Delta, there shall be co-equal goals of reliable water supply and a sustainable ecosystem.’ That elevated the idea of sustainability, it elevates the public trust or places the public trust in a co-equal status with the consumptive uses and developmental uses of the ecosystem.”

How we determine what is co-equal in a changing setting is a very complex task, he acknowledged. “The one aspect of our law that does have overriding directives to protect the environment is the federal Endangered Species Act and to some extent the state Endangered Species Act as well,” he said, noting that he’ll discuss only the federal Endangered Species Act for simplicity. He pointed out that the federal act applies to federal agencies, and in California, that is not only the Central Valley Project that is operated by the US Bureau of Reclamation, but also the State Water Project because they operate in a coordinated way pursuant to contract as well as statutory law.

The Endangered Species Act says that ‘All federal agencies must ensure that their actions do not jeopardize the continued existence of any endangered or threatened species or significantly impair their critical habitat,’” he said. “There are some accommodations made for economic uses and developmental uses. There may be incidental take of certain listed species – for example, a certain number of species may be killed in the operation of the water projects. Habitat may be altered to some extent, but the over arching directive is that the species must be protected and their critical habitat must be preserved.”

There is a separate provision of the statute that prohibits the taking, the harming, the capture, the harming, the wounding or the killing of protected species and again, it provides civil and criminal penalties,” he said. “When you put these two provisions of the statute together, they create what the US Supreme Court has called very powerful directives and incentives to operate federal projects or, in the case of California’s water system, the coordinated operation of the federal and state projects in a way that protects the species.”

This is particularly important as we move into the drought because while other laws allow for an accommodation of interest and ultimately require an analysis of what is a reasonable choice to make between water supply and environmental protection, protection of reliance interests, contract rights, property rights, and environmental considerations, the federal Endangered Species Act states that the species must be protected, he said. “As we move further into drought, those provisions will be in place and they will require that despite economic difficulties that that may cause, the state and federal projects be operated in a way that does the best as the regulators can determine to protect the endangered and threatened species that inhabit or pass through the Delta ecosystem, and that will provide a baseline of protection that is really unique in the law.”

Now there’s nothing magic about that,” he said. “That is the enactment of the Endangered Species Act which authorized the listing of all runs of salmon and steelhead and a variety of other species that inhabit the Delta such as the Delta smelt,” he said. That was a political choice that Congress made back in 1973 and that’s a political choice that Congress can undo. I would expect that there will be bills introduced in Congress to suspend Endangered Species Act protections to allow greater water supply.”

With farmers and water contractors receiving very little water this year, we’re likely to see litigation filed this year, he said. “That litigation will be under the Fifth Amendment for taking of property; it will also be litigation for breach of water contracts by which the federal and state governments have pledged a reliable water supply to the contractors. So far, that litigation, with a couple of exceptions, has been resolved in favor of the United States and in favor of the overriding regulatory interests. But I think we are likely to see litigation being filed again, challenging the endangered species requirements that water be allocated to the fish in the situation of a drought.”

 

At this point, the floor was opened up for questions.

Group 1Professor Jay Lund kicked off the discussion period by asking the speakers what institution or individual has the legal authority to determine a reasonable reconciliation on a regional scale that might have a multitudes of different water quality and water right aspects to it as well as endangered species. “Is it the courts? Is it something that just has to be fought in the very incremental long term ugly way through the courts? Is it something the regional water boards can come in and mediate the process? Is it the Department of Fish and Wildlife in the case of the Delta, maybe the Delta Stewardship Council … ? Who resolves the big ugly water dispute? Who has the authority to do that?”

The courts aren’t well positioned to resolve these and some of the most successful resolutions in California had been really negotiated resolutions,” responded Mr. Lauffer.  “It’s a matter of once you’ve got that stick hanging out there, whether it’s the regulatory agency that’s going to inflict a lot of pain on somebody, that’s when you start to pull together … ultimately you’re going to get a solution that’s a negotiated solution. … The State Water Board at least touches both components, the water rights and the water quality side, and we can drive some of these solutions, but even for us, we don’t reach every aspect of it.”

One of the quirky things about California it that when it comes to consumptive water rights, the courts and State Water Board have what is called concurrent jurisdictions,” added Professor Richard Frank. “So someone from the business community or the environmental community who is unhappy about some water issue, water dispute or water allocation has the option of either going to court or filing a petition before the State Water Board. That’s to be contrasted with water quality and water pollution decisions where really the water board is where you have to go in the first instance … I would argue that the water boards have a larger and more authoritative role to deal with these big ugly nasty issues with respect to a lot of pollution and of shared responsibility with respect to water rights … US Supreme Court justice, Sandra Day O’Connor said about 20 years ago in a Supreme Court decision, ‘water quality and water rights are two sides of the same coin.’ It’s hard to distinguish those, but in our legal system, treats those as distinct principles.”

The last time that I checked, when you look at how the courts resolve these through an adjudication process, there wasn’t an adjudication in California that actually the court had to come impose it,” said Mr. Lauffer. “Instead, in every instance, at least in ground water basins, every single one of them has essentially been negotiated, because they were all afraid of what the courts would do. … That’s why I say, you need to have that powerful tool, whether it’s a court or a cold-hearted regulator coming in and threatening to bang heads, because that gets people talking like nobody’s business.”

Judges will have said to me that they’re just not well-suited to make these types of decisions,” said Mr. Gray. “So what they can do is they can take the threat of an endangered species judgment on unreasonable use determination or a decision that the public trust is being violated, and then really encourage them to sit down and negotiate a solution. … I think that there is synergistic role and the courts can play a very constructive, but really secondary or tertiary role.”

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