Offstream Storage of Colorado River Water and Interstate Redemption of Storage Credits in the Lower Division States

SUMMARY: Under this proposed rule Colorado River water may be stored

offstream in the Lower Basin to permit future interstate use of

Colorado River water in the Lower Division States (Arizona, California,

or Nevada). This proposed rule would establish the procedural framework

under which authorized entities (for example, a State-authorized water

bank) in any Lower Division State could store offstream Colorado River

water to develop storage credits associated with that water, and redeem

those water storage credits within the Lower Division. This rule would

increase the efficiency, flexibility, and certainty in Colorado River

management.

DATES: Comments:

Any comments must be received by Reclamation at the address below

on or before March 2, 1998.

Request for Public Hearings

Upon request, Reclamation will hold public hearings on the proposed

rule in Las Vegas, Nevada, Phoenix, Arizona and Ontario, California.

Reclamation will accept requests for public hearings until 4:00 p.m.

Pacific time on January 30, 1998.

ADDRESSES:

Comments

If you wish to comment, you may submit your comments by any one of

several methods. You may mail comments to Bureau of Reclamation,

Administrative Record, Lower Colorado Regional Office, P.O. Box 61470,

Boulder City, NV 89006-1470. You may also comment via the Internet at

[email protected] (see Electronic Access and Filing Addresses under

SUPPLEMENTARY INFORMATION).

In addition, you may hand-deliver comments to Bureau of

Reclamation, Administrative Record, Lower Colorado Regional Office, 400

Railroad Avenue, Boulder City, Nevada.

Comments, including names and street addresses of respondents, will

be available for public review at this address during regular business

hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, Pacific time,

except holidays. If you wish to request that Reclamation consider

withholding your name or street address from public review or from

disclosure under the Freedom of Information Act, you must state this

prominently at the beginning of your comment. All submissions from

organizations or businesses, and from individuals identifying

themselves as representatives or officials of organizations or

businesses, will be made available for public inspection in their

entirety.

Public Hearings

If Reclamation receives a request to schedule public hearings in

Las Vegas, Nevada; Phoenix, Arizona; or Ontario, California,

Reclamation will hold such hearings at the following locations:

McCarran International Airport, 5757 Wayne Newton Boulevard,

Commissioner's Meeting Room, 5th Floor, Terminal 1, Las Vegas, Nevada;

Bureau of Indian Affairs conference room, 2 Arizona Center, 400 North

5th Street, 12th Floor, Phoenix, Arizona; Red Lion Hotel, 222 North

Vineyard, Ontario, California. Upon request, Reclamation will consider

holding public hearings in other locations, at times and on dates that

Reclamation will announce prior to the hearings.

Request for public hearings and request to participate in public

hearings

Submit requests for public hearings and requests to participate in

public hearings orally or in writing to Mr. Dale E. Ensminger, Boulder

Canyon Operations Office, Bureau of Reclamation, P.O. Box 61470,

Boulder City, Nevada 89006-1470, telephone (702) 293-8659.

FOR FURTHER INFORMATION CONTACT: Mr. Dale Ensminger, telephone (702)

293-8659.

SUPPLEMENTARY INFORMATION: This section provides the following

information:

I. Public Comment Procedures

Written Comments

Electronic Access and Filing Addresses

Public Hearings

II. Background

III. Purpose of this Rule

IV. Prior Rulemaking Proceedings

V. Section-by-Section Analysis of Proposed Rule

VI. Procedural Matters

Environmental Compliance

Paperwork Reduction Act

Regulatory Flexibility Act

Unfunded Mandates Reform Act of 1995

Executive Order 12612, Federalism Assessment

Executive Order 12630, Taking Implications Analysis

Executive Order 12866, Regulatory Planning and Review

Author

List of Subjects in 43 CFR Part 414

I. Public Comment Procedures

Written Comments

Written comments on the proposed rule should be specific, should be

confined to issues pertinent to the proposed rule, and should explain

the reason for any recommended change. Where possible, comments should

reference the specific section or paragraph of the proposed rule that

the commenter is addressing. Reclamation will not necessarily consider

or include in the Administrative Record for the final rule comments

which Reclamation receives after the close of the comment period (see

DATES) or comments delivered to an address other than those listed

above (see ADDRESSES).

Electronic Access and Filing Addresses

If you comment via the Internet at [email protected] (see

ADDRESSES), please submit comments as an ASCII file avoiding the use of

special characters and any form of encryption. Please also include

``attn: AC1006-AA40'' and your name and return address in your Internet

message. If you do not receive a confirmation from the system that we

have received your Internet message, contact us directly at (702) 293-

8411.

Public Hearings

Individuals who wish to attend but not testify at any hearing

should contact the person identified under FOR FURTHER INFORMATION

CONTACT beforehand to verify that Reclamation will hold the hearing.

Reclamation will hold public hearings on the proposed rule as specified

above if a member of the public requests a public hearing. Any person

who desires to participate at a hearing at a particular location should

inform Mr. Dale E. Ensminger under FOR FURTHER INFORMATION CONTACT

either orally or in writing of the desired hearing location by 4:00

p.m. Pacific time January 30, 1998. If no one has contacted Mr. Dale E.

Ensminger to express an interest in participating in a hearing at a

given location by that date, Reclamation will not hold that hearing. If

only one person expresses an interest, Reclamation may hold a public

meeting rather than a hearing, and Reclamation will include the results

in the Administrative Record.

If Reclamation holds a hearing, Reclamation will continue the

hearing until all persons wishing to testify have

[[Page 68493]]

had an opportunity to do so. In order to assist the transcriber and to

ensure an accurate record, Reclamation requests that each person who

testifies at a hearing give the transcriber a copy of that testimony.

In order to assist Reclamation in hearing preparation, Reclamation also

requests that each person who plans to testify submit to Reclamation at

the address previously specified (see ADDRESSES) an advance copy of

that testimony.

II. Background

The Colorado River serves as a source of water for irrigation,

domestic, and other uses in the States of Arizona, California,

Colorado, Nevada, New Mexico, Utah, and Wyoming, and in the Republic of

Mexico. The initial apportionment of water from the Colorado River was

made by an interstate compact, the Colorado River Compact, dated

November 24, 1922 (Compact). The Compact became effective in 1929

following ratification by six states and approval by the Congress of

the United States. The State of Arizona became the final State to

ratify the Compact in 1944. The Compact defined the Colorado River

Basin and divided the seven States into two basins, an Upper Basin and

a Lower Basin. The Compact apportioned to each basin, in perpetuity,

the exclusive beneficial consumptive use of 7.5 million acre-feet (maf)

of water. Under the Compact, ``consumptive use'' means diversions of

water from the mainstream of the Colorado River, including water drawn

from the mainstream by underground pumping, less return flow to the

river.

The Lower Basin includes those parts of the States of Arizona,

California, Nevada, New Mexico, and Utah within and from which waters

naturally drain into the Colorado River system below Lee Ferry

(Arizona), a point in the mainstream of the Colorado River 1 mile below

the mouth of the Paria River. The Compact also grouped the seven States

into two divisions, the Upper Division and the Lower Division. The

Lower Division consists of the States of Arizona, California, and

Nevada. All mainstream Colorado River water apportioned by the Compact

to the Lower Basin is divided among the three Lower Division States.

All mainstream Colorado River waters apportioned to the Lower Basin,

except for a few thousand acre-feet apportioned to the State of

Arizona, have been allocated to specific entities and, except for

certain Federal establishments, placed under permanent water delivery

contracts with the Secretary for irrigation or domestic use. These

entities include irrigation districts, water districts, municipalities,

Federal establishments including Indian reservations, public

institutions, private water companies, and individuals.

The Supreme Court of the United States, in its Opinion of June 3,

1963, (373 U.S. 546) and Decree entered March 9, 1964 (376 U.S. 340)

(Decree), in the case of Arizona v. California, et al., confirmed that

the Secretary was vested with sufficient authority and charged with the

responsibility to direct, manage, and coordinate the operation of dams

and related works on the Colorado River in the Lower Basin. The Supreme

Court concluded, among other things, that the Secretary derives

significant authority from the contract authority under section 5 of

the Boulder Canyon Project Act of 1928 (45 Stat. 1057, 43 U.S.C.

617)(BCPA) that requires water users in the Lower Basin to have a

contract with the Secretary. The Supreme Court further concluded that

Congress intended the Secretary, principally through the Secretary's

section 5 contract power, to carry out the allocation of the waters of

the mainstream of the Colorado River among the Lower Basin States and

to decide which water users within each State would get water and on

what terms. Accordingly, the Secretary acts as water master of the

Colorado River in the Lower Basin.

The Decree excludes Federal establishments from the BCPA

requirement for a contract with the Secretary, but the water allocated

to a Federal establishment is included within the apportionment of the

Lower Division State in which the Federal establishment is located.

Waters available to a Lower Division State within its apportionment but

with a priority date later than June 25, 1929, have been allocated by

the Secretary to water users within that State after consultation with

the State.

Many Colorado River water rights originated as ``perfected rights''

that are specified in the Decree as rights acquired in accordance with

State law and exercised by the actual diversion of a specific quantity

of water for beneficial use on a defined area of land or to definite

municipal or industrial works, and in addition will include water

rights created by the reservation of mainstream water for the use of

Federal establishments under Federal law whether or not the water has

been applied to beneficial use. The highest priority Colorado River

water rights are present perfected rights (PPR's) that the Decree

defines as those perfected rights existing on June 25, 1929 (the

effective date of the BCPA). The Decree also recognizes Federal Indian

reserved rights for the quantity of water necessary to irrigate all the

practically irrigable acreage on five Indian reservations along the

Colorado River. The Decree defines the rights of Indian and other

Federal reservations to be Federal establishment PPR's. PPR's are

important because in any year in which there is less than 7.5 maf of

Colorado River water available for consumptive use in the Lower Basin

States, PPR's will be satisfied first in the order of their priority

without regard to State lines.

In 1996, Arizona enacted a State-authorized program establishing an

Arizona State Water bank that would allow offstream storage of Colorado

River water and subsequent interstate delivery of such stored water

through redemption of credits pursuant to Interstate Storage

Agreements. In the future, other Lower Division States may enact

comparable measures.

III. Purpose of this Rule

Arrangements that facilitate more efficient use of the limited

Colorado River water resource are beneficial to all water users. This

proposed rule addresses offstream storage of Colorado River water and

development of storage credits by authorized entities within the Lower

Division States. Authorized entities include a State water banking

authority, or other entity of a Lower Division State holding

entitlements to Colorado River water, expressly authorized pursuant to

applicable laws of Lower Division States to: (1) Enter into Interstate

Storage Agreements; (2) develop intentionally created unused

apportionment; (3) acquire the right to use intentionally created

unused apportionment; or (4) develop or redeem storage credits for the

benefit of an authorized entity in another Lower Division State.

The rule will establish a framework for the Secretary to follow in

approving and administering interstate agreements to allow offstream

storage and contractual distribution of Colorado River water, and

thereby encourage voluntary interstate water transactions among the

Lower Division States. Such voluntary water transactions, including

interstate contractual distribution of Colorado River water consistent

with the BCPA and the requirements of the Supreme Court of the United

States in its Decree entered March 9, 1964 (3376 U.S. 340) (Decree) in

Arizona v. California, et al., can help to satisfy regional water

demands. The proposed rule does not deal with intrastate storage and

distribution of water.

The proposed rule will foster prudent water management in the Lower

Division States by allowing authorized

[[Page 68494]]

entities of Consuming States, pursuant to an interstate agreement, to

store Colorado River water offstream, to receive storage credits for

the stored water, and to recover this water for future use. The

offstream storage will be accomplished through an authorized entity of

the Storing State. The water to be stored will be basic apportionment

from the Storing State or unused basic apportionment or unused surplus

apportionment of the Consuming State. The proposed rule is based on the

understanding that this type of offstream storage is a beneficial

consumptive use of Colorado River water. The rule is permissive in

nature and is intended to encourage and facilitate these voluntary

water transactions.

The proposed rule is designed to improve the Secretary's ability to

fulfill his responsibilities to manage the Lower Basin of the Colorado

River on a more efficient basis. This proposed rule is expected to be a

first step toward improving the efficiency associated with management

of the Colorado River in the Lower Basin.

While taking action in the form of this proposed rule to assist the

States of the Lower Division of the Colorado River to meet their water

needs, the Department also acknowledges its responsibilities to the

Indian Tribes in the Lower Division. The Department is interested in

finding ways that the Tribes may more fully benefit from the water

rights they hold in the Lower Basin, and in protecting the availability

of water supplies to which these rights attach.

The focus in the proposed rule is on the use of State-authorized

entities, including water banks, as a vehicle for authorizing

interstate storage and redemption of storage credits associated with

Colorado River water. The Department believes that the interstate water

storage and deliveries permitted by these rules can be implemented

without compromising its responsibilities toward, and in fact may lead

to benefits to, the Indian Tribes. The Department's proposed reliance

on State-authorized entities is predicated, in part, on its expectation

that these entities will be operated in a fashion that provides an

opportunity for Indian Tribes to participate in storage and similar

activities. In this regard the Department notes that the State of

Arizona is examining ``mechanisms that will enable Indian communities

that hold entitlements to Colorado River water to participate in water

banking with the Arizona Water Banking Authority.'' Arizona Laws 1996,

ch. 308, Sec. 27. The Department encourages Arizona and the other Lower

Division States to implement programs within the existing Law of the

River that will allow the Tribes to more fully benefit from their water

rights.

In addition, the Department will be mindful of the need to protect

local tribal water resources when fulfilling its role as set forth in

these interstate water banking rules. Tribes as well as other water

rights holders may, for example, have concerns regarding the potential

impacts of future groundwater withdrawals from a water bank on their

water rights. The Department wants to work with Lower Division States

and authorized entities banking Colorado River water to ensure that

water stored and recovered for interstate delivery does not adversely

impact those local tribal water resources. Under the proposed rule the

Secretary will, when determining whether to approve a proposed

interstate transaction, take into account, among other things, the

potential impacts of a proposed transaction on water rights holders,

including Indian Tribes. See Sec. 414.3(b).

Finally, this proposal does not address, and is not intended to

govern the exercise of, whatever authority the Secretary of the

Interior has to consider and implement, in appropriate situations,

tribal storage and water transfer activities.

Except as described below, the Secretary, in reviewing an

Interstate Storage Agreement, will not focus on the price associated

with utilization of storage credits or other financial details agreed

to by the authorized entities as willing sellers and willing buyers.

The transaction must leave the United States in no worse a financial

position than if the transaction had not occurred. When it is

operationally feasible to do so, United States facilities may be

available for use in storing, delivering, and distributing Colorado

River water offstream under the proposed rule to the extent that the

United States is fully reimbursed for relevant capital, interest, and

operation and maintenance costs. Approval to deliver Colorado River

water cannot obligate the Federal Government to incur extra non-

reimbursable expenses to store water or deliver it to a new location.

Further, existing Reclamation law requires adjustment in repayment

terms when use of the water shifts from a non-interest bearing category

to an interest-bearing category, such as from agriculture use to

municipal and industrial use. Additionally, if pumping power is needed

to affect a given transaction, the parties to the transaction must

provide or pay for such power, and may have to secure it from non-

Federal sources.

The actions and transactions contemplated in the proposed rule are

within the current authority of the Secretary, the BCPA, and the

Decree. Under BCPA, with the exception of Federal Establishments PPR's,

no authorized entity may receive Colorado River water except in

accordance with a contract with the Secretary. Where appropriate to

implement the Interstate Storage Agreement, the Secretary will contract

for water deliveries under Section 5 of the Boulder Canyon Project Act.

In accordance with specific approvals, offstream storage and

development of storage credits for interstate purposes have already

taken place on a limited basis. The proposed rule will provide a

standard set of procedures to be used in place of the ad hoc processes

that have been used for previous interstate water transactions. These

procedures will provide greater flexibility, certainty, and assurance

to all parties potentially interested in entering into interstate

transactions for storage of Colorado River water and use or redemption

of storage credits. This increased certainty is expected to promote

more efficient management of the Colorado River and facilitate

additional voluntary water transactions of this type among Lower Basin

water users.

The Secretary will consider the implications of the proposed

Interstate Storage Agreement for the financial interests of the United

States and the United States will require the parties who benefit from

the transactions to fund the United States' reasonable costs to

evaluate, process, and/or approve transactions entered into under this

rule. In considering a request for approval of an Interstate Storage

Agreement for offstream storage of Colorado River water and use or

redemption of storage credits, the Secretary will consider, among other

relevant factors: applicable law; applicable contracts; potential

effects on trust resources; potential effects on contractors or Federal

entitlement holders, including Indian and non-Indian PPR holders and

other Indian tribes; potential effects on other third parties;

environmental impacts and effects on threatened and endangered species;

comments from interested parties, particularly parties who may be

affected by the proposed action; and other relevant factors, including

the implications of the proposed Interstate Storage Agreement for the

financial interests of the United States.

IV. Prior Rulemaking Proceedings

In 1991, 1992, and 1994, Reclamation developed draft rules for

administering

[[Page 68495]]

Colorado River water entitlements and distributed drafts to known

interested parties. Among other things, those drafts included

provisions that would have allowed instream storage of water saved,

interstate transfer of conserved water, reductions in entitlements due

to nonuse, and proposed water conservation criteria. Because of the

controversy associated with these proposals, Reclamation suspended

further work on the rule in late 1994 to allow the Lower Division

States time to develop a consensus on storage and interstate transfer

issues. While a consensus on all of these issues has not been achieved,

it appears that there is strong support and demand for a new, more

narrowly focused rule that will facilitate offstream water storage and

interstate water delivery programs in the Lower Basin.

V. Section by section analysis of the Proposed Rule

Section 414.1. Purpose

Under this proposed rule Colorado River water may be stored

offstream to permit future interstate use of Colorado River water. This

proposed rule would establish the procedural framework under which

authorized entities of any of the Lower Division States (Arizona,

California, or Nevada) could store offstream through another authorized

entity (for example, State-authorized water banks) in any Lower

Division State, Colorado River water allocated but not taken by water

entitlement holders within the State where the storage occurs, or

unused basic apportionment, or surplus apportionment of the Consuming

State. The authorized entity of the Storing State would develop, on

behalf of the authorized entity in the consuming state, storage credits

associated with that water. When unused apportionment is intentionally

created to satisfy a request for delivery of water from storage

credits, the authorized entity must ensure that its State's consumptive

use is decreased by a quantity sufficient to offset the quantity of

storage credits that are to be made available as unused apportionment

by the Secretary and delivered for use in another Lower Division State

in accordance with Article II(B)(6) of the Decree. This rule would

increase efficiency, flexibility, and certainty in Colorado River

management.

The proposed rule establishes procedures for interstate contractual

distribution derived from credits for Colorado River water stored

offstream. These procedures will apply to all holders of entitlements

to use Colorado River water in the Lower Division States. The proposed

rule allows authorized entities of any Lower Division State to enter

into agreements with authorized entities of another Lower Division

State to store Colorado River water offstream, develop storage credits,

and redeem storage credits associated with that water, subject to the

approval of the Secretary.

Section 414.2. Definitions

This section of the rule defines terms that are used in the rule.

The following terms are defined by or derived from the Decree: basic

apportionment, Colorado River water, consumptive use, mainstream,

surplus apportionment, and unused apportionment. Most of the other

terms were defined for the purposes of this rule to establish a common

understanding of terms relating to storage of water.

All Interstate Storage Agreements for offstream storage of Colorado

River water and the interstate redemption of storage credits under this

proposed rule would be executed by a State water banking authority, or

other entities holding entitlements to Colorado River water, expressly

authorized pursuant to applicable laws of Lower Division States to: (1)

enter into Interstate Storage Agreements; (2) develop intentionally

created unused apportionment; (3) acquire the right to use

intentionally created unused apportionment; or (4) develop or redeem

storage credits for the benefit of an authorized entity in another

Lower Division State. States are encouraged to define the term

``authorized entity'' broadly so as not to exclude appropriate entities

potentially interested in entering into arrangements to develop or

acquire water storage credits on an interstate basis. Constraints

placed on ``authorized entities'' will have the likely effect of

reducing the net benefits associated with the proposed rule.

The proposed rule includes a definition of intentionally created

unused apportionment of Colorado River water. As proposed, it does not

specify what measures or actions may be used to create such

apportionment. In Section 414.3, the Secretary specifies the

information that he will consider in approving any proposed Interstate

Storage Agreement. Subparagraph (a)(7) of Section 414.3 directs that

any request for approval of a proposed Interstate Storage Agreement,

``specify which action the authorized entity will take to create

intentionally created unused apportionment.'' The Department seeks

comment on the issue of whether the final definition of intentionally

created unused apportionment should specify what types of measures or

actions the Secretary would approve as intentionally created unused

apportionment. Comments should identify actions that would be adequate

to demonstrate the development of intentionally created unused

apportionment.

Section 414.3. Interstate Storage Agreements and Redemption of Storage

Credits

The proposed rule would authorize offstream storage of Colorado

River water in the Lower Division States by State-authorized entities

on the basis of approved Interstate Storage Agreements. Under this

section of the proposed rule, a Lower Division State authorized entity

could establish a water bank and store Colorado River water on behalf

of authorized entities in the other two Lower Division States. Such

water banks could store water consisting of water allocated but not

taken by water entitlement holders within the Storing State, or unused

basic apportionment, or surplus apportionment of the Consuming State.

The proposed rule assumes that there are two ways to ``store''

water in offstream storage: direct storage or indirect storage. Direct

storage can be accomplished by putting water into an underground

aquifer at an underground water storage facility or in a surface

reservoir located off the mainstream of the Colorado River. Indirect

storage can be accomplished through groundwater savings that result

from replacing established groundwater use with Colorado River water.

A central feature of the procedures in the proposed rule is the

Interstate Storage Agreement. Under this section of the proposed rule,

the authorized entities of two or more Lower Division States may enter

into an agreement to store Colorado River water offstream. To become

effective, these agreements require approval by the Secretary. To

obtain the approval of the Secretary, each Interstate Storage Agreement

must contain a description of the following: quantity of water to be

stored; location of storage; type and source of water; accounting,

reporting and use of storage credits associated with water to be

stored; end use of water to be stored; and the extent to which Federal

facilities or resources will be used to deliver or store Colorado River

water stored offstream.

Under the proposed rule, the Secretary has 120 days to approve or

disapprove such agreements unless the Secretary determines that

additional time is necessary to review the agreement because the

proposal

[[Page 68496]]

involves significant environmental compliance activities or other

issues. In reviewing any proposed Interstate Storage Agreement, the

Secretary will consider the following: applicable law; applicable

contracts; potential effects on trust resources; potential effects on

contractors or Federal entitlement holders, including Indian and non-

Indian present perfected rights (PPR) holders and other Indian tribes;

potential effects on third parties; environmental impacts and effects

on threatened and endangered species; comments from interested parties,

particularly parties who may be affected by the proposed action; and

other relevant factors, including the implications of the proposed

Interstate Storage Agreement for the financial interests of the United

States.

Under this section of the proposed rule, storage credits are

developed for the benefit of the authorized entity for which Colorado

River water is placed in offstream storage. The storage credits entitle

the entity to recover water at a later date. The authorized entities

involved in the transaction will account for the water diverted and

stored offstream under an Interstate Storage Agreement, and prior to

any redemption of storage credits certify to the Secretary that water

associated with storage credits has been stored. The Secretary must be

satisfied that necessary actions have been taken to develop

intentionally created unused apportionment. Once this determination has

been made, the Secretary will make available this intentionally created

unused apportionment for use by the authorized entity of the Consuming

State consistent with the BCPA, Article II(B)(6) of the Decree, and all

other applicable laws. Also, under this section, Interstate Storage

Agreements may be assigned in whole or in part to authorized entities

upon the agreement of the parties to the Interstate Storage Agreement

and approval of the Secretary.

Section 414.4. Reporting Requirements and Accounting for Storage

Credits

Under this section of the proposed rule, each authorized entity

that has stored Colorado River water offstream for interstate purposes

must submit a report to the Secretary by January 31 of each year. The

report will specify the quantity of Colorado River water that was

stored during the previous year and is recoverable in future years and

the number of storage credits associated with that water. Under this

proposed rule, the Department has assumed that storage credits would be

equal to the quantity of water stored less deductions and losses from

storage that includes losses attributable to evaporation or percolation

or water required by State law to remain in an aquifer. Such reports

will also specify the balance of Colorado River storage credits

redeemed during the previous year and the balance of such credits that

remain recoverable as of December 31 of the previous year. This

reporting requirement will not impose a burden on the authorized entity

of a Storing State because the authorized entity will need to maintain

these records for its own purposes.

Under the proposed rule, the United States will continue to fulfill

the requirements of the Decree that requires the Secretary to prepare

and maintain, at least annually, complete, detailed, and accurate

records of diversions of water from the mainstream, return flow of such

water to the mainstream, and consumptive use of such water. Under the

proposed rule, the water diverted and stored offstream will be

accounted for as consumptively used in that same year in the Storing

State, in accordance with Article V of the Decree. The accounting

records would also reflect an equivalent quantity of storage credits in

the Storing State. When unused apportionment is intentionally created

to satisfy a request for delivery of water from storage credits, the

authorized entity must take action to ensure that its State's

consumptive use is decreased by a quantity sufficient to offset the

quantity of water made available as unused apportionment by the

Secretary and delivered for use in another Lower Division State. After

the authorized entity confirms in writing to the Secretary the quantity

of water to be delivered for use in the Consuming State and includes

documentation of actions taken to intentionally create a like quantity

of unused apportionment, the Secretary will declare unused

apportionment available within the Storing State and allocate that

unused apportionment to the Consuming State to allow recovery of the

storage credits. The intentionally created unused apportionment so made

available to the Consuming State by the Secretary will be accounted for

as consumptively used when Colorado River water in the amount of the

intentionally created unused apportionment is released for use in the

Consuming State, in accordance with Article V of the Decree.

Under the proposed rule and in accordance with Article II(B)(6) of

the Decree, the Secretary may release in any one year any Colorado

River water that is apportioned for consumptive use in a Lower Division

State but which will be unused in that State for consumptive use in

another Lower Division States in that same year. The water so released

for consumptive use in the other Lower Division States is unused

apportionment.

For example, under the proposed rule, when storage credits are

redeemed, Colorado River water that would otherwise be supplied to a

water user in a Storing State could be supplied from offstream storage

in that State. The Storing State will reduce its Colorado River water

use in accordance with the approved Interstate Storage Agreement. Then

the Secretary, in accordance with the terms of Article II (B)(6) of the

Decree, will make the Colorado River water available to the Consuming

State. No other Lower Division State or other user in the Storing State

will be able to claim the water since the Secretary is authorized under

Article II (B)(6) of the Decree to make such water available, and the

Secretary will have agreed to implement the terms of the Interstate

Storage Agreement. No other Lower Division State will be eligible to

receive water made available to the Consuming State under that

Interstate Storage Agreement.

Section 414.5. Water Quality

This section of the rule is a disclaimer which states that except

for specific water quality responsibilities that are established for

the Secretary by Federal law, the Secretary does not guarantee the

quality of water released or delivered through Federal facilities.

Water quality will be monitored by the Environmental Protection Agency

and the Army Corps of Engineers and will be subject to State or Tribal

jurisdiction, as appropriate, in accordance with the Clean Water Act.

Section 414.6 Environmental Compliance

Under the proposed rule, the Secretary is responsible for ensuring

the actions taken under the rule comply with the National Environmental

Policy Act of 1969, as amended (NEPA), the Endangered Species Act of

1973, as amended (ESA), and will integrate the requirements of other

statutes, laws, and executive orders as required for Federal actions

taken under this proposed rule.

Federal actions requiring environmental compliance may include, but

are not limited to, approval of transactions that entail changes in the

place or quantity of water diversions necessary to store a Lower

Division State's water. In evaluating a proposed Federal action taken

under this part for compliance with the National Environmental Policy

Act, the Secretary will consider effects on natural and

[[Page 68497]]

other resources as identified in the Bureau of Reclamation's National

Environmental Policy Act (NEPA) Handbook and other relevant

environmental laws and regulations. The parties to a proposed

transaction would be responsible for completing environmental

compliance documentation in accordance with the standards set forth in

the Bureau of Reclamation's NEPA Handbook and subject to Reclamation

approval prior to the Secretary's approval of the proposed action.

The Department, through Reclamation, will collect in advance the

estimated costs incurred by the United States in evaluating,

processing, or approving the action from the persons or entities who

would benefit from a proposed action under this rule.

VI. Procedural Matters

Environmental Compliance

Reclamation has prepared a draft environmental assessment (DEA).

Reclamation has placed the DEA on file in the Reclamation

Administrative Record at the address specified previously. The public

is invited to review the DEA by contacting Reclamation at the addresses

listed above (see ADDRESSES) and suggests that anyone wishing to submit

comments in response to the DEA do so in accordance with the Written

Comments section above.

Compliance with NEPA, the ESA, and other relevant statutes, laws,

and executive orders will be completed for future Federal actions taken

under this rule to ensure that any action authorized or carried out by

the Secretary does not jeopardize the continued existence of any

threatened or endangered species, does not adversely modify or destroy

a critical habitat, and is analyzed by an appropriate environmental

document. Consultation and coordination between Reclamation, the Fish

and Wildlife Service, other agencies, and interested parties will be

completed on a case-by-case basis.

Paperwork Reduction Act

The Department believes that this rule does not contain information

collection requirements that the Office of Management and Budget (OMB)

must approve under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501

et seq. This proposed rule is geographically limited to the States of

Arizona, California and Nevada. The proposed rule covers authorized

entities that would store Colorado River water off the mainstream of

the Colorado River. The information to be reported will be compiled by

the authorized entities in the course of their normal business and the

annual reports to the Secretary will not impose any significant time or

cost burden. It is estimated that each respondent would need one hour

at an estimated cost of $20 to complete the annual reporting

requirement. Moreover, the Department assumes that there will never be

an industry-wide collection of information and assumes that there will

always be fewer than 10 entities required to report information.

Notwithstanding these circumstances, the Department intends to seek

information collection approval from the OMB, pursuant to the Paperwork

Reduction Act of 1995, 44 U.S.C. 3501 et seq.

Regulatory Flexibility Act

Congress enacted The Regulatory Flexibility Act of 1980 (RFA), 5

U.S.C. 601 et seq., to ensure that Government regulations do not

unnecessarily or disproportionately burden small entities. The RFA

requires a regulatory flexibility analysis if a rule would have a

significant economic impact, either detrimental or beneficial, on a

substantial number of small entities. An initial RFA analysis has been

completed. This rule will not impose any direct cost on small entities.

A benefit-cost analysis was completed and concludes that the proposed

rule does not impose significant or unique impact upon small

governments (including Indian communities), small entities such as

water purveyors, water districts, or associations, or individual

entitlement holders.

Unfunded Mandates Reform Act of 1995

The adoption of 43 CFR part 414 will not result in any unfunded

mandate to State, local, or tribal governments in the aggregate, or to

the private sector, of $100 million or more in any one year.

Executive Order 12612, Federalism Assessment

The proposed rule does not alter the relationship between the

Federal Government and the States under the Decree nor does it alter

the distribution of power and responsibilities among the various levels

of government. Therefore, in accordance with Executive Order 12612, the

Secretary has determined that this proposed rule does not have

sufficient federalism implications to warrant preparation of a

Federalism Assessment.

Executive Order 12630, Takings Implications Analysis

The proposed rule does not represent a government action capable of

interfering with constitutionally protected property rights. This rule

does not impose additional fiscal burdens on the public. This rule

would not result in physical invasion or occupancy of private property

or substantially affect its value or use. The rule would not result in

any Federal action that would place a restriction on a use of private

property. The rule does not affect a Colorado River water entitlement

holder's right to use its full water entitlement. Under the proposed

rule, an authorized entity may store unused Colorado River water

available from an entitlement holder's water rights only if the water

right holder does not use or store that water on its own behalf. Under

the proposed rule, the only water that can be used to satisfy storage

credits is unused apportionment created by the forbearance of a use

which otherwise would have occurred. Therefore, the Department of the

Interior has determined that the rule would not cause a taking of

private property or require further discussion of takings implications

under this Executive Order.

Executive Order 12866, Regulatory Planning and Review

This proposed rule is a significant regulatory action under section

3(f)(4) of Executive Order 12866 because it raises novel legal or

policy issues. Executive Order 12866 requires an assessment of

potential costs and benefits under section 6(a)(3) of that Executive

Order. Reclamation's benefit-cost analysis determines that the proposed

rule does not impose significant or unique impacts upon small

governments (including Indian communities), small entities such as

water purveyors or associations, or even individual water entitlement

holders.

The proposed rule authorizes the distribution of Colorado River

water storage credits created by off stream storage on an interstate

basis.

California and Nevada are looking for alternative water supplies to

satisfy the increasing demands of economic development and population

growth. The proposed rule may provide an opportunity for Colorado River

water users in Nevada to experience a marginal costs savings in

securing alternative supplies. Off stream storage of Colorado River

water and interstate distribution of Colorado River water storage

credits are voluntary actions. Should the costs of the procedures

proposed in the rule to facilitate these transactions be greater than

the costs of other alternative water supplies, California and Nevada

would probably select the lower cost alternatives.

[[Page 68498]]

The benefit-cost analysis estimated net economic benefits of the

proposed rule on a State and regional level using different water

supply models and discount rates. The different water supply models

represent potential water supply conditions on the Colorado River that

affect interstate demand for water from an Arizona water bank and the

magnitude of economic benefits obtained from that water. The discount

rates used in the analysis were 5.75% (the average rate on municipal

bonds in 1996, which is a rate faced by major water purveyors in

California and Nevada) and 8.27% (the prime rate in 1996, which more

accurately represents the cost of money).

Under a conservative water supply scenario characterized by 19

years of normal conditions on the Colorado River and one surplus year,

discounted net economic benefits at the regional level ranged from

$12.8 to $61.2 million at 5.75% and $9.5 to $47.7 million at 8.27%.

Under a water supply scenario characterized by 10 years of surplus

conditions on the Colorado River, the net economic benefits range from

$550,255 to $4.8 million at 5.75% and $350,789 to $3.1 million at

8.27%. Under the scenario characterized by 10 surplus years, demand for

banked water is relatively low because the Lower Division States can

meet most of their water needs with diversions from the mainstream.

Reclamation has placed the full analysis on file in the Reclamation

Administrative Record at the address specified previously (see

ADDRESSES).

Author

The principal author of this rule is Mr. Dale E. Ensminger, Boulder

Canyon Operations Office, Bureau of Reclamation, P.O. Box 61470,

Boulder City, Nevada 89006-1470, telephone (702) 293-8659.

List of Subjects in 43 CFR Part 414

Administrative practice and procedure, Environmental protection,

Public lands, Reporting and recordkeeping requirements, Water bank

program, Water resources, Water storage, Water supply, Water quality.

Dated: December 22, 1997.

Patricia J. Beneke,

Assistant Secretary--Water and Science.

For the reasons stated in the preamble, the Bureau of Reclamation

proposes to add a new part 414 to title 43 of the Code of Federal

Regulations as follows:

PART 414--OFFSTREAM STORAGE OF COLORADO RIVER WATER AND INTERSTATE

REDEMPTION STORAGE CREDITS IN THE LOWER DIVISION STATES

Sec.

414.1 Purpose.

414.2 Definitions.

414.3 Interstate storage agreements and redemption of storage

credits.

414.4 Reporting requirements and accounting for storage credits.

414.5 Water quality.

414.6 Environmental compliance.

Authority: 43 U.S.C. 617; 43 U.S.C. 391; 43 U.S.C. 485; 43

U.S.C. 1501; 5 U.S.C. 553; 373 U.S. 546; 376 U.S. 340.

Sec. 414.1 Purpose.

This part sets forth the procedural framework for approval by the

Secretary of the Interior of interstate agreements for the offstream

storage of Colorado River water in the Lower Division States by State-

authorized entities consistent with State law. In accordance with the

Secretary's authority under Article II (B) (6) of the Decree entered

March 9, 1964 (376 U.S. 340), in the case of Arizona v. California, et

al. as supplemented and amended, this part also includes the procedural

framework to develop and redeem storage credits associated with

Colorado River water stored offstream by authorized entities consistent

with State law. This part does not address intrastate storage or

distribution of water not subject to an Interstate Storage Agreement.

Sec. 414.2 Definitions.

The following definitions, listed alphabetically, apply to this

part:

Authorized entity means a State water banking authority, or other

entity of a Lower Division State holding entitlements to Colorado River

water, expressly authorized pursuant to applicable laws of Lower

Division States to:

(1) Enter into Interstate Storage Agreements;

(2) Develop intentionally created unused apportionment;

(3) Acquire the right to use intentionally created unused

apportionment; or

(4) Develop or redeem storage credits for the benefit of an

authorized entity in another Lower Division State.

Basic apportionment means the Colorado River water apportioned to

each Lower Division State when sufficient water is available for

release, as determined by the Secretary of the Interior, to satisfy 7.5

million acre-feet (maf) of annual consumptive use in the Lower Division

States. The annual basic apportionment for the Lower Division States is

2.8 maf of consumptive use for the State of Arizona, 4.4 maf of

consumptive use for the State of California, and 0.3 maf of consumptive

use for the State of Nevada.

Colorado River water means water in or withdrawn from the

mainstream.

Consuming State means a Lower Division State where water made

available by redeeming storage credits is or will be used.

Consumptive use means diversions from the Colorado River less such

return flow to the river as is available for consumptive use in the

United States or in satisfaction of the Mexican treaty obligation.

Consumptive use from the mainstream within the Lower Division States

includes all consumptive use of water from the mainstream, including

water drawn from the mainstream by underground pumping. The Mexican

treaty obligation is set forth in the February 3, 1944, Water Treaty

between Mexico and the United States, including supplements and

associated Minutes of the International Boundary and Water Commission.

Contractor means any person or entity in the States of Arizona,

California, or Nevada who has a valid contract or agreement with the

United States for the delivery of Colorado River water.

Decree means the decree entered March 9, 1964, by the Supreme Court

in Arizona v. California, et al., 373 U.S. 546 (1963), as supplemented

or amended.

Entitlement means an authorization to beneficially use Colorado

River water pursuant to:

(1) A decreed right,

(2) A contract with the United States through the Secretary, or

(3) A reservation of water from the Secretary.

Federal entitlement holder means a Federal agency or Indian tribe

identified in Article II(D) of the Decree as having an entitlement for

the beneficial use of Colorado River water.

Intentionally created unused apportionment means unused

apportionment that is created solely as a result of an agreement within

a Storing State for the purposes of making Colorado River water

available for use in a Consuming State in fulfillment of a request for

redemption of storage credits pursuant to an Interstate Storage

Agreement.

Interstate storage agreement means an agreement, consistent with

this part, that provides for offstream storage of Colorado River water

in a Storing State for authorized entities in Consuming States and for

the recovery of the stored water. An Interstate Storage Agreement will

be among authorized entities of two

[[Page 68499]]

or more Lower Division States and may include other entities that are

determined to be appropriate to the performance and enforcement of the

agreement under Federal law and the respective laws of the Storing

State and the Consuming State.

Lower Division States means the States of Arizona, California, and

Nevada.

Mainstream means the main channel of the Colorado River downstream

from Lee Ferry within the United States, including the reservoirs

behind dams on the main channel, and Senator Wash Reservoir off the

main channel.

Offstream storage means storage in a surface reservoir off of the

mainstream or in a groundwater aquifer. Offstream storage also includes

indirect recharge when mainstream water is exchanged for groundwater

that otherwise would be pumped and consumed.

Present perfected right or PPR means perfected rights defined by

the Decree, existing as of June 25, 1929, the effective date of the

Boulder Canyon Project Act (45 Stat. 1057, 43 U.S.C. 617) (BCPA). All

present perfected rights are listed in the supplemental decrees entered

January 9, 1979, and April 16, 1984, by the United States Supreme Court

in Arizona v. California, et al., as amended or supplemented.

Secretary means the Secretary of the Interior or an authorized

representative.

Storage Credit refers to an accounting device to reflect a quantity

of Colorado River water that is stored offstream.

Storing State means a Lower Division State in which water is stored

off the mainstream.

Surplus apportionment means the Colorado River water apportioned to

each Lower Division State when sufficient water is available for

release, as determined by the Secretary, to satisfy in excess of 7.5

maf of annual consumptive use in the Lower Division States.

Unused apportionment means Colorado River water within a Lower

Division State's basic or surplus apportionment, or both, which is not

put to beneficial consumptive use during that year within that State.

Unused entitlement means any Colorado River water that is made

available to but not scheduled and used by an entitlement holder during

the year for which it is made available.

Sec. 414.3 Interstate storage agreements and redemption of storage

credits.

(a) Interstate storage agreements. In accordance with Article

II(B)(6) of the Decree, authorized entities of two or more Lower

Division States may enter into Interstate Storage Agreements subject to

the approval of the Secretary in accordance with paragraph (b) of this

section. An Interstate Storage Agreement will allow an authorized

entity in a Storing State to store unused entitlement and/or unused

apportionment for the credit of an authorized entity located in a

Consuming State and will provide for the subsequent redemption of the

credit. Such an agreement must:

(1) Specify the quantity of Colorado River water to be stored, by

which authorized entity it will be stored, the Lower Division State in

which it is to be stored, and the storage facility(ies) in which it

will be stored.

(2) Specify whether the water to be stored will be basic

apportionment from the Storing State or unused basic apportionment or

unused surplus apportionment of the Consuming State. If it is to be

unused apportionment, it may only be made available from the Consuming

State and the agreement must so specify.

(3) Specify the quantity of storage credits associated with water

stored offstream that will be available to the authorized entity in the

Consuming State at the time water is actually stored under the

agreement.

(4) Specify that accumulated storage credits may not be redeemed

within the same calendar year in which the water that generated those

credits was stored offstream.

(5) Specify that the authorized entity in the Consuming State will

provide notice to the Lower Division States and to the Secretary no

later than November 30 of its intention to request delivery of a

specific quantity of Colorado River water by redeeming accumulated

storage credits in the following calendar year.

(6) Specify that the authorized entity of a Storing State, after

receiving a notice of intention to redeem offstream storage credits,

will take actions to ensure that the Storing State's consumptive use of

Colorado River water will be decreased by a quantity sufficient to

develop intentionally created unused apportionment to offset the

delivery of Colorado River water for use in the Consuming State in

fulfillment of the storage credits.

(7) Specify which actions the authorized entity will take to

develop intentionally created unused apportionment.

(8) Specify that the authorized entity of the Storing State must

certify to the Secretary that intentionally created unused

apportionment has been developed that would not otherwise exist and

that the authorized entity will request the Secretary to make available

that quantity of Colorado River water for use in the Consuming State

pursuant to Article II(B)(6) of the Decree to redeem storage credits.

(9) Indemnify the United States, its employees, agents,

subcontractors, successors, or assigns from loss or claim for damages

and from liability to persons or property, direct or indirect, and of

any nature whatsoever arising by reason of the actions taken by the

United States in accordance with this part.

(10) Identify the extent to which facilities constructed or

financed by the United States will be used to store, convey, or

distribute water associated with an Interstate Storage Agreement.

(b) Approval by the Secretary. A request for approval of an

Interstate Storage Agreement should be made in writing to the

Secretary. The request will be acknowledged in writing by the Secretary

within 10 business days of receipt. The request should include copies

of the proposed interstate agreement and any additional supporting data

that clearly set forth the details of the proposed transaction. In

reviewing the proposed interstate agreement, the Secretary will

consider, among other relevant factors: applicable law; applicable

contracts; potential effects on trust resources; potential effects on

water rights holders, including contractors, Federal entitlement

holders, Indian and non-Indian PPR holders, and other Indian tribes;

potential effects on third parties; environmental impacts and effects

on threatened and endangered species; comments from interested parties,

particularly parties who may be affected by the proposed action; and

other relevant factors, including the direct or indirect consequences

of the proposed Interstate Storage Agreement on the financial interests

of the United States. The Secretary will respond to the request within

120 days. However, if the proposal involves significant environmental

compliance activities or other issues such that 120 days is an

insufficient period in which to respond, the Secretary will communicate

this to all parties to the proposed request and set out a schedule by

which such work will be completed or such issues resolved. In that

case, the Secretary will render a decision within 90 days of completion

of the environmental compliance activities and resolution of other

issues (if applicable). Where appropriate to implement the Interstate

Storage Agreement, the Secretary will contract for water deliveries

under Section 5 of the Boulder Canyon Project Act.

[[Page 68500]]

(c) Stored water. The authorized entity of the Storing State will

account for the water diverted and stored offstream under an Interstate

Storage Agreement, and prior to any redemption of storage credits will

certify to the Secretary that water associated with storage credits has

been stored.

(d) Redemption of storage credits. The Secretary must be satisfied

that necessary actions have been taken to develop intentionally created

unused apportionment for redemption of storage credits. Once this

determination has been made, the Secretary will make available a

quantity of Colorado River water to redeem those credits consistent

with the BCPA, Article II(B)(6) of the Decree, and all other applicable

laws. Intentionally created unused apportionment that is developed by

the authorized entity of the Storing State will be made available to

the authorized entity of the Consuming State and will not be made

available to other contractors or Federal entitlement holders.

(e) Assignment. Interstate Storage Agreements may be assigned in

whole or in part to authorized entities upon the agreement of the

parties to the Interstate Storage Agreement and upon the approval by

the Secretary consistent with the requirements of paragraph (b) of this

section.

Sec. 414.4 Reporting requirements and accounting for storage credits.

Each authorized entity will annually report to the Secretary, by

January 31, the quantity of water it diverted and stored on behalf of

authorized users in other Lower Division States and the balance of

storage credits remaining in interstate storage for each entity as of

December 31 of the prior calendar year. This water will be accounted

for, in the records maintained by the Secretary under Article V of the

Decree, as a consumptive use in the Storing State for the year in which

it is stored. The Secretary will maintain individual balances of

storage credits established by the offstream storage of water under

Interstate Storage Agreements. The balances will be reduced when

intentionally created unused apportionment is developed by the

authorized entity in a Storing State and made available for use in a

Consuming State. In the records maintained by the Secretary under

Article V of the Decree, the taking of unused apportionment for use in

a Consuming State by an authorized entity in redemption of its storage

credits will be accounted for as consumptive use by the Consuming State

of unused apportionment in the year the water is used, the same as with

any other unused apportionment taken by that State.

Sec. 414.5 Water quality.

(a) No guarantee of water quality. The Secretary does not warrant

the quality of water released or delivered under interstate agreements,

and the United States will not be liable for damages of any kind

resulting from water quality problems. The United States will not be

under any obligation to construct or furnish water treatment facilities

to maintain or improve water quality standards.

(b) Water quality standards. All contractors or Federal entitlement

holders, in diverting, using, and returning Colorado River water, must

comply with all relevant water pollution laws and regulations of the

United States, the Storing State, and the Consuming State, and must

obtain all applicable permits or licenses from the appropriate Federal,

State, or local authorities regarding water quality and water pollution

matters.

Sec. 414.6 Environmental compliance.

(a) Ensuring environmental compliance. The Secretary will ensure

that environmental compliance is completed. The Secretary will be

responsible for ensuring compliance with the National Environmental

Policy Act of 1969, as amended, and the Endangered Species Act of 1973,

as amended, and will integrate the requirements of other statutes,

laws, and executive orders as required for Federal actions taken under

this part.

(b) Responsibility for environmental compliance work. Authorized

entities requesting Secretarial approval of an interstate transaction

pursuant to this part may prepare the appropriate documentation and

compliance document for a proposed Federal action such as approving a

proposed interstate transaction. Such compliance documents must meet

the standards set forth in Reclamation's National Environmental Policy

Act Handbook before they can be adopted. All costs incurred by the

United States in evaluating, processing, and/or approving transactions

entered into under this part must be funded by the parties that propose

the transaction.

[FR Doc. 97-33990 Filed 12-30-97; 8:45 am]

BILLING CODE 4310-94-P