Greg Dorrington

May 4, 2007

For the last five years, the United States Bureau of Reclamation has operated a water bank[1] in the Klamath River Basin in order to discharge its Endangered Species Act ("ESA") obligations to threatened Coho salmon.[2] However, the Ninth Circuit Court of Appeals recently determined that Reclamation's water bank was not doing its job and that the Coho that were supposed to benefit from the additional water would likely be extinct by the time the bank reached full operational capacity in 2010.[3] Reclamation, now under a court order to reassess its operations plan,[4] is expected to consult with the National Marine Fisheries Service ("NMFS")[5] to determine what role a water bank will play in the future of a basin plagued with water supply shortage problems. To that end, Reclamation and NMFS should consider adopting a comprehensive, state-operated, basinwide water bank tailored toward species recovery and ecosystem restoration. Such a water bank would redistribute water demand throughout the entire basin in a way that permits agriculture and salmon to coexist in the watershed. Following a short recitation of the relevant background information, this editorial presents four recommendations for a more effective water bank designed to reallocate the basin's water use and bring the Klamath Basin's liquid ledger sheet into balance.

I. Background

The Klamath River Basin straddles the Oregon and California border and drains an area roughly twice the size of the Commonwealth of Massachusetts.[6] Issuing from Upper Klamath Lake, the Klamath River originates in a high mountain desert where the average yearly precipitation is only thirteen inches--very little of which falls during the summer months.[7] In 1905, to encourage westward settlement, the Bureau of Reclamation initiated the Klamath Irrigation Project to "reclaim" the arid upper basin for agricultural use.[8] Born from the idea of creating a reliable water supply for homesteaders, the Klamath Project now consists of over 1,200 miles of plumbing that irrigates some 225,000 acres of farmland[9] and supports a $100 million per year agricultural community.[10]

In addition to agriculture, the waters of the Klamath also support three species of fish protected by the ESA. The endangered Lost River and Shortnose suckers inhabit Upper Klamath Lake while the lower river supports the threatened Southern Oregon/Northern California Coastal Coho salmon. The operation of Reclamation's Klamath Project affects the lake levels and river flows that provide habitat for these endangered and threatened fish. As such, the agency must ensure that its operations comply with the ESA. Compliance, however, is a delicate balancing act of retaining sufficient water in the upper basin for the protection of endangered suckers, all the while permitting enough water to flow downstream to support threatened Coho.

This delicate line has not always been an easy one for Reclamation to walk. In 2001, forced by an extraordinarily low water supply, Reclamation shut off irrigation deliveries for the summer growing season in order to protect the endangered and threatened fish. In doing so, the Upper Klamath Basin turned into a veritable dustbowl.[11] The next year, under similar water supply conditions, but increased political pressures, Reclamation provided full irrigation deliveries. As a result, by early September 2002, flows in the Lower Klamath had dwindled and warmed as thousands of salmon were making their annual run. The high concentration of fish in the warm shallow water led to an outbreak of "gill rot" killing an estimated 68,000 fish.[12] It was the first adult salmon mortality event recorded on the Klamath River.[13]

Illustrated by the events of 2001 and 2002, the central problem in the Klamath Basin is that water demand exceeds water supply. Unfortunately, increasing the basin's water supply so as to meet water demand is not a viable option in the Klamath--the basin does not have carry-over storage capabilities and has little opportunity for new water impoundments.[14] Faced with this reality, Reclamation adopted a demand reduction management program, referred to as the Klamath Basin Pilot Water Bank ("Pilot Water Bank"), in 2002.[15]

The Pilot Water Bank was a means for Reclamation to purchase water rights from irrigators and other consumptive surface water users to augment Klamath River stream flows in order to discharge the agency's § 7(a)(2) ESA obligation to prevent jeopardizing the continued existence of Coho salmon.[16] The objective was to reduce irrigation demand in the upper basin in order to free up water and usher it downstream for the benefit of threatened Coho in the lower basin. Although a water bank can be an effective water management tool, the Ninth Circuit found that Reclamation's Pilot Water Bank, and the operations plan of which it was part, did not supply a sufficient quantum of water downstream to adequately discharge the agency's § 7(a)(2) obligations. In all likelihood, the Pilot Water Bank failed to provide enough water for Coho because the geographic scope of its operation was too narrow, it provided too little water, unnecessarily limited buyer participation, and failed to encourage long-term water deposits. The following recommendations, taken together, remedy these inadequacies.

II. Four Recommendations for a More Effective Klamath Basin Water Bank

To remedy the Pilot Water Bank's deficiencies, Reclamation should establish species recovery and ecosystem conservation as the water bank's overarching purposes. Additionally, Reclamation should delegate operational authority to the states of Oregon and California, encourage long-term water deposits, and stimulate buyer participation to create a seller's market.

Establish a Conservation Purpose

Reclamation should redefine the objective of its water bank and establish as its purpose the conservation of threatened Coho salmon and the ecosystem upon which it depends. In general, the specific water management issue a water bank is intended to address serves as the bank's organizing principle. Thus, an encompassing conservation objective, such as species conservation, requires an equally encompassing structure and scope of operations. For the Klamath, this translates into significantly increasing the amount of water committed to augmenting stream flows and expanding the geographic scope of the water bank in order to do so.

In contrast to this recommendation, the purpose of Reclamation's Pilot Water Bank was merely to provide an additional quantum of water so that Reclamation could satisfy its § 7(a)(2) ESA duty to prevent jeopardizing the continued existence of Coho. Effectively, Reclamation was only required to send downstream just enough water to keep Coho on the brink of extinction without actually forcing them out of existence. The ESA, however, demands more than preventing extinction.

The plain language of the ESA requires that Reclamation adopt a conservation purpose for its water bank. Section 7(a)(1) and the express policy of the ESA require that all federal agencies carry out its programs for the conservation of listed species.[17] Under the ESA, "conservation" means using all methods necessary to bring Coho to the point at which federal protection is no longer necessary.[18] Despite its mandatory language, § 7(a)(1) has not enjoyed the notoriety nor the teeth of its sister provision § 7(a)(2), and courts have permitted federal agencies a wide degree of discretion in its interpretation.[19] Even so, Reclamation may not read its duty to conserve the Coho out of existence.[20] Further, adopting a conservation water bank will ensure that Reclamation discharges both its § 7(a)(1) and its § 7(a)(2) obligations and strike an equitable balance between agriculture and fisheries resources in the Klamath Basin.

To meet this conservation objective, Reclamation must expand the geographic scope of its water bank. The Pilot Water Bank operated in the upper portion of the basin. With few exceptions, participation in the water bank was open to all surface water users, including Project and non-Project water users, above Keno Dam. The area above Keno Dam, however, represents only a fraction of the Klamath Basin watershed. To satisfy the water bank's conservation mission, it will have to operate basinwide. Leasing and purchasing of water rights in the lower basin tributaries such as the Scott, Shasta, and Trinity Rivers would improve both main stem and tributary flows, reestablish cool water temperatures during the summer, and benefit Coho rearing habitat and smolt migration.[21]

Yet, Reclamation's statutory authority to operate a conservation water bank is limited to the Klamath Project area in the upper basin. Expanding the water bank to encompass the entire Klamath River Basin would exceed the agency's authority. Therefore, Reclamation should enter into a cooperative agreement with the states and Native American tribes that have authority over the region and collaborate with them in the recovery of Coho salmon and the restoration of the Klamath ecosystem.

Partner with State and Tribal Entities and Subdelegate ESA Obligations

To effectively implement a conservation water bank Reclamation must partner with the states of Oregon and California and the Klamath Basin tribes. While Reclamation may have authority under the ESA and federal reclamation law to establish a water bank for the purpose of conserving Coho salmon and the ecosystem upon which the salmon depend, Reclamation does not have the statutory authority to implement the water bank to the extent necessary to actually bring about species recovery and ecosystem restoration in the Klamath Basin. For this reason, it is imperative that Reclamation partner with the states and tribes because these political entities have the authority to administer a conservation water bank of the magnitude and scope contemplated in the first recommendation. Moreover, such an arrangement would permit the states to maintain their historical role of controlling the allocation and administration of water rights in the Klamath River and its tributaries.

The federal government, the states, and the tribes, should structure the partnership in the form of a cooperative agreement. Under the agreement, the states of Oregon and California should be the chief administrators of the basinwide water bank and coordinate with the tribes as necessary. By the agreement's terms, Reclamation would formally subdelegate[22] its authority to operate a water bank for the purpose of meeting its § 7 ESA obligations to Oregon and California. However, Reclamation would remain involved in the management of the water bank to the extent necessary to ensure that the water bank provides enough water each year to satisfy its § 7(a)(2) ESA obligations and tribal trust responsibilities.[23] Despite divesting itself of day-to-day operational control of the water bank, Reclamation would remain accountable for its duty to avoid jeopardizing the existence of the Coho salmon and for its conservation duties.

The benefits of this arrangement are many. First, it takes full advantage of what a water bank can do for the basin. Under Reclamation's operation, the water bank is limited by the agency's scope of authority, which does not include soliciting and purchasing water rights across the basin. By placing the water bank in the states' hands, it takes advantage of the traditional authority states have over water resources. With the states of Oregon and California at the helm, concerns over federal statutory authority will not curtail the scope and effectiveness of the water bank. Second, Reclamation will be more likely to satisfy its ESA obligations if the states aggressively administer the water bank for the recovery of Coho salmon. Because recovery of the salmon will require larger volumes of water than would be necessary for the mere survival of the species, avoiding jeopardy will not likely be an issue. Third, the arrangement places the restoration of the basin and the recovery of Coho salmon within the ambit of state control. The collapse of the Klamath Basin salmon fishery has negatively impacted the economies of Oregon and California. Both states stand to benefit a great deal if they were to restore it. As operators of a basinwide water bank, the states would be in a unique position to facilitate water transfers, augment instream flows and boost the salmon's chances at survival and recovery.

One of the important effects of the cooperative partnership will be the institutionalization of the conservation water bank that will result from the states' creation and adoption of a conservation program under § 6(c) of the ESA.[24] As originally conceived, Reclamation's Pilot Water Bank was never intended to be a long-term project. In fact, the water bank was supposed to provide a "temporary means to augment river flows for threatened species" and also to allow Reclamation "to meet its contractual responsibility to deliver water to Project irrigators while long-term, basinwide solutions for balancing water demands are evaluated."[25] The problem is that Reclamation has never considered a water bank as being part of the permanent, long-term solution for balancing water demands in the Klamath Basin. The institutionalization of a basinwide water bank remedies that problem.

This institutionalization will add permanence, legitimacy, stability, and predictability to the newly created water bank and basin residents will be more apt to participate in the water exchange. With this stability, farmers and ranchers will be more likely to incorporate water bank deposits in their long-term operations planning. This might include periodic fallowing of farmland on a rotational basis where the farmer sells the unused water to the bank during the fallowing years. The water bank's permanency will eventually become an integral part of farm and rangeland planning processes and will increase the potential user base of the water bank.

Permanent Water Deposits

In addition to institutionalizing the basinwide water bank, the water bank administrators must encourage permanent water deposits in addition to the typical year-to-year lease contracts. Temporary water transfers, by their nature, result in temporary water reallocation. In a basin where supply and demand is drastically skewed toward the demand side, there needs to be permanent water transfers dedicated to instream use in order to restore balance to the Basin and move toward the recovery of threatened Coho.

The historic over-allocation of water rights in the Klamath River Basin has become inefficient enough to warrant permanent transfers of water dedicated to augmenting Klamath stream flows.[26] Temporary water transfers, while less disruptive and threatening than permanent ones, suffer from the obvious disadvantage that they do not provide permanent protection to instream flows. [27] Purchasing water rights, rather than leasing them, is the best option for streams that have chronic flow problems.[28] In a basin where the fundamental problem is that water demand outstrips water supply, permanent water deposits will result in the permanent reduction of demand on the Klamath Basin water system. Long-term solutions in the Klamath hinge on the long-term, permanent readjustment of supply and demand.

In addition to ecological benefits, permanent water acquisitions are also more economical than temporary transfers. Between 2002 and 2004, Reclamation's water bank expenditures totaled over $12 million, and were projected to exceed $65 million through 2011.[29] Yet, if Reclamation goes on to spend $65 million of public tax revenue by 2011, the Klamath Basin will be no closer to achieving long-term ecological balance than it was in 2007 because the agency will have had to continue purchasing short-term leases in perpetuity. A better option is to purchase the water rights outright rather than lease them on a yearly basis. That way, after dedicating $65 million dollars to the water bank, the government will have something to show for it--permanent reduction in water demand. This, at least, is a step closer to establishing ecological balance to the basin and avoids the money trap of continuous leasing. This is not to mention the enormous transaction costs associated with perpetual leasing programs, a system where contracts and applications must be renewed for each new water year. With leasing programs, like the Pilot Water Bank, a new application, bid, price, contract, and exchange must take place annually. With permanent acquisitions, on the other hand, there is only one exchange. Transaction costs are low and demand reduction is permanent.     

Create a Seller's Market

Last of all, Reclamation should create a seller's market to encourage the active participation of water entitlement holders and to facilitate the reallocation of water rights in the Klamath. A seller's market exists when there are more willing buyers than there are willing sellers. The excess of demand over supply drives up commodity prices inducing the owners of water entitlements to sell their rights rather than use them themselves. In the Klamath, this inducement would increase the amount of irrigation water that is being deposited into the water bank and thus into the Klamath River. A seller's market naturally exists in the Klamath because water demand far outstrips water supply--especially in low flow years. However, Reclamation's Pilot Water Bank artificially stultified this natural seller's market by limiting buyer participation. In fact, Reclamation was the only potential buyer in the Pilot Water Bank. This monopsonistic regime limits market demand, lowers commodity prices and thereby decreases the number of willing sellers and, correspondingly, the amount of water committed to instream flow values for the Klamath River.

The obvious remedy to a single-buyer regime is to open up the market and increase buyer participation by permitting any individual, association, corporation, agency, state, or Native American tribe to purchase water rights for instream use through the water bank. Under this editorial's recommended water bank regime, the operation of the bank would be in the hands of the states of Oregon and California, which are entities capable of ensuring a robust, competitive market for water rights in the basin. The states should open up water rights purchasing to other interested stakeholders with a requirement that any purchased water be used strictly for augmenting natural stream flows. Such an arrangement, for example, would allow commercial salmon fishermen, Trout Unlimited, regional outfitters and other interest groups to obtain instream water for the protection of fisheries and their own interests. The Fish and Wildlife Service could purchase water for the six National Wildlife Refuges it manages in the basin. PacifiCorp, a company that operates numerous hydroelectric dams on the Klamath River, could purchase water to increase the river's power generating capacity. Another obvious benefit to freeing up the market is the likelihood that there will be an influx of capital. With more money going to purchase instream water rights, the reallocation of water use in the Klamath will take place quickly and the benefit to salmon will be immediate. The fate of Coho would no longer be tied to the purse strings of Congress, but rather, their fate would rest with the public and private stakeholders who have a vested interest in a healthy Klamath ecosystem.

III. Conclusion

The use of market competition, the sine qua non of a water bank, is an equitable means to strike a balance between agriculture and fisheries resources in the Klamath Basin. Where the Klamath Basin Pilot Water Bank failed, as a legal matter, to supply sufficient water for the Coho, the comprehensive, basinwide water bank proposed in this editorial can succeed. Placing administrative control in the hands of the states, empowering nonfederal buyers, encouraging long-term water deposits, and broadening the water bank objective can help reduce the constraints originally placed on the Pilot Water Bank and will promote the free market competition necessary to reallocate the basin's water resources to where they are needed most. As this competition plays out across the basin, the Klamath's liquid ledger sheet will fall into balance.

[1] Defined generally, a water bank is an institutional mechanism that facilitates the legal transfer and market exchange of water entitlements designed to address and alleviate specific water management issues through the reallocation of water usage. See Peggy Clifford et al., Wash. State Dep't of Ecology, Analysis of Water Banks in the Western States ii (July 2004), available at http://www.ecy.wa.gov/pubs/0411011.pdf (last visited Apr. 16, 2007).

[2] Nat'l Marine Fisheries Serv., Nat'l Oceanic and Atmospheric Admin., U.S. Dep't of Commerce, Biological Opinion: Klamath Project Operations, at 52 (May 31, 2002), available at http://www.usbr.gov/mp/mp150/envdocs/kbao/KpopBO2002finalMay31.pdf (last visited Apr. 16, 2007) [hereinafter NMFS 2002 BiOp] (Reclamation adopted the water bank pursuant to a reasonable and prudent alternative contained in the Biological Opinion).

[3] Pac. Coast Fed'n of Fishermen's Ass'ns v. U.S. Bureau of Reclamation, 426 F.3d 1082, 1094 (9th Cir. 2005) (stating that "all the water in the world in 2010 . . . will not protect the Coho, for there will be none to protect").

[4] Pac. Coast Fed'n of Fishermen's Ass'ns v. U.S. Bureau of Reclamation, No. CIV.C02-2006 SBA, 2006 WL 798920, at *7-8 (N.D. Cal. Mar. 27, 2006), aff'd, No. 06-16269, 2007 WL 901580, at *2 (9th Cir. Mar. 22, 2007).

[5] Although the National Marine Fisheries Service was officially renamed the National Oceanic and Atmospheric Administration Fisheries Service, I will continue to refer to the agency as NMFS in this Editorial to maintain consistency with historical documents.

[6] Or. Water Res. Dep't, Resolving the Klamath 7 (1999).

[7] Reed D. Benson, Giving Suckers (and Salmon) and Even Break: Klamath Basin Water and the Endangered Species Act, 15 Tul. Envtl. L.J. 197, 201 (2002).

[8] Act of February 9, 1905, ch. 567, 33 Stat. 714. The Secretary of the Interior authorized the Project on May 1, 1905 pursuant to the Reclamation Act of June 17, 1902, 43 U.S.C. § 372 et seq.

[9] U.S. Bureau of Reclamation, U.S. Dep't of the Interior, Klamath Project: General Description, at http://www.usbr.gov/dataweb/html/klamath.html (last visited Apr. 16, 2007).

[10] Klamath Basin Area Office, Mid-Pacific Region, U.S. Bureau of Reclamation, U.S. Dep't of the Interior, Klamath Project: Historic Operation 6 (Nov. 2000), available at http://www.usbr.gov/mp/kbao/docs/Historic%20Operation.pdf (last visited Apr. 16 2007).

[11] For a telling photographic journal of the 2001 dust storms see http://www.klamathbasincrisis.org/Photos/dust-april.htm (last visited Apr. 16, 2007).

[12] Cal. Dep't of Fish and Game, September 2002 Klamath River Fish-Kill: Final Analysis of Contributing Factors and Impacts, III (July 2004), available at http://www.pcffa.org/KlamFishKillFactorsDFGReport.pdf (last visited Apr. 16, 2007) [hereinafter Fish-Kill Analysis]. For a graphic video of the fish kill see http://www.earthjustice.org/news/multimedia/video1/page.jsp?itemID=29675451 (last visited Apr. 16, 2007).

[13] Fish-Kill Analysis, supra note 12, at III.

[14] Klamath Basin Area Office, Mid-Pacific Region, U.S. Bureau of Reclamation, U.S. Dep't of the Interior, Klamath Basin Pilot Water Bank 1, at http://www.usbr.gov/mp/kbao/pilot_water_bank/latest_primer_waterbank.pdf (last visited Apr. 16, 2007).

[15] Reclamation adopted the Pilot Water Bank as part of the NMFS 2002 BiOp on Reclamation's proposed ten year Klamath Project Operation Plan. See NMFS 2002 BiOp, supra note 2, at 52.

[16] Under § 7(a)(2) of the ESA, federal agencies are under the duty to "insure that any action authorized, funded, or carried out" by them "is not likely to jeopardize the continued existence" of any threatened or endangered species "or result in the destruction or adverse modification" of designated critical habitat. 16 U.S.C. § 1536(a)(2) (2000).

[17] Id. §§ 1531(b), 1531(c)(1), 1536(a)(1) (2000).

[18] Id. § 1532(3). Under the definition of "conservation," Congress specifically lists habitat acquisition and maintenance as a "method and procedure" to be used for species conservation. Id. Water banking, which includes acquiring water rights to maintain instream flows for the Klamath River, therefore is an appropriate method and procedure, under the ESA, to conserve threatened Coho salmon.

[19] See Pyramid Lake Paiute Tribe of Indians v. U.S. Dep't of the Navy, 898 F.2d 1410, 1418 (9th Cir. 1990) (permitting a federal agency the discretion to choose which action alternative to pursue even when the course of action eventually chosen did not have as stringent of conservation requirements as did the other alternatives).

[20] See Sierra Club v. Glickman, 156 F.3d 606, 616 (5th Cir. 1998) (holding that although agencies have a wide degree of discretion in interpreting section 7(a)(1), an agency cannot ignore this section altogether, noting that section 7(a)(1) "impose[s] an affirmative duty on each federal agency to conserve").

[21] NMFS 2002 BiOp, supra note 2, at 60; see also Nat'l Research Council, Endangered and Threatened Fishes in the Klamath River Basin: Causes of Decline and Strategies for Recovery 351 (2004).

[22] The term "subdelegation" is used because the original delegation is from Congress to Reclamation while the subsequent delegation from Reclamation to the States is deemed a subdelegation of authority. Nat'l Park & Conservation Ass'n v. Stanton, 54 F. Supp. 2d 7, 19 n.5 (D.D.C. 1999).

[23] In drafting the cooperative agreement, Reclamation must be careful not to run afoul the non-delegation doctrine. Also referred to as unlawful subdelegation, this doctrine generally prohibits a federal agency from completely shifting a statutory responsibility or obligation to a non-federal party absent an affirmative showing of congressional authorization. Nonetheless, delegations by federal agencies to non-federal parties are valid so long as the agency retains final reviewing authority. The "final reviewing authority" retained by the federal agency must be more than the option to withdraw from or terminate the relationship granting authority to the non-federal entity. Rather, it must be a meaningful retention of control over the activity of the private party, through oversight, veto, or otherwise.

[24] Under § 6(c) of the ESA, the partner states must make a showing that they have the authority to conserve the threatened Coho salmon and to conduct investigations to determine their status and requirements for survival, and establish that the conservation program is consistent with the purposes and policies of the ESA. 16 U.S.C. § 1535(c)(1) (2000); see also 50 C.F.R. § 81.2 (2006). These requirements will force the states of California and Oregon to create a water bank program either through their state water resource agencies or through state legislative enactment. Either way, the resulting program will be a significantly more permanent than the present water bank.

[25] U.S. Gov't Accountability Office, GAO-05-283, Klamath River Basin: Reclamation Met its Water Bank Obligations, but Information Provided to Water Bank Stakeholders Could be Improved 4 (2005) [hereinafter GAO Water Bank Report].

[26] Kenneth D. Frederick, Water Marketing: Obstacles and Opportunities, 16 F. Applied Res. & Public Pol'y 54, 58 (2001).

[27] David M. Gillilan & Thomas C. Brown, Instream Flow Protection: Seeking a Balance in Western Water Use 148 (1997).

[28] Clay J. Landry, Saving Our Streams Through Water Markets: A Practical Guide 23 (1998).

[29] GAO Water Bank Report, supra note 25, at unpaginated highlight sheet titled "What GAO found."