Offstream Storage of Colorado River Water and Development and Release of Intentionally Created Unused Apportionment in the Lower Division States

SUMMARY: This rule establishes a procedural framework for the Secretary

of the Interior (Secretary) to follow in considering, participating in,

and administering Storage and Interstate Release Agreements among the

States of Arizona, California, and Nevada (Lower Division States). The

Storage and Interstate Release Agreements would permit State-authorized

entities to store Colorado River water offstream, develop intentionally

created unused apportionment (ICUA), and make ICUA available to the

Secretary for release for use in another Lower Division State. This

rule provides a framework only and does not authorize any specific

activities. The rule does not affect any Colorado River water

entitlement holder's right to use its full water entitlement, and does

not deal with intrastate storage and distribution of water. The rule

only facilitates voluntary interstate water transactions that can help

satisfy regional water demands by increasing the efficiency,

flexibility, and certainty in Colorado River management.

EFFECTIVE DATE: December 1, 1999.

FOR FURTHER INFORMATION CONTACT: Mr. Dale Ensminger, (702) 293-8659 or

Ms. Erica Petacchi (202) 208-3368.

SUPPLEMENTARY INFORMATION:

I. Background

II. Final Rule as Adopted

III. Tribal Issues

IV. Responses to Comments

V. Procedural Matters

I. Background

This final rule was preceded by a proposed rule that we published

in the Federal Register on December 31, 1997 (62 FR 68491). The

proposed rule provided for a public comment period that ran from

December 31, 1997 through April 3, 1998. In addition to oral comments

submitted at one public hearing and one public meeting, we received 47

letters during the comment period on the proposed rule. Two letters

commented only on the draft programmatic environmental assessment

(DPEA). The respondents included two irrigation districts, three water

districts, two water authorities, two water user associations, three

individuals, one municipal utility, one city, one farmer's

organization, one safe drinking water organization, four environmental

organizations, 11 State agencies, nine Indian tribes, and seven Federal

agencies. We reviewed and analyzed all comments and revised the final

rule based on these comments.

The DPEA provided for a comment period that ran from December 31,

1997 through April 3, 1998. Oral comments on the DPEA were submitted at

the same public hearing and the same public meeting for the proposed

rule. In addition to those oral comments, we received 25 letters from

26 respondents during the comment period. The respondents included one

water district, one water authority, one individual, five environmental

organizations, five State agencies, six Indian tribes, and seven

Federal agencies. As with the rule, we reviewed and analyzed all

comments and revised the final programmatic environmental assessment

based on these comments.

As a result of receiving differing comments on the definition of

authorized entity and several other technical matters, we reopened the

comment period on September 21, 1998 (63 FR 50183) for a 30-day period

ending October 21, 1998. We asked interested parties to comment on

three specific questions. We received 10 letters from 11 respondents

during the reopened comment period. The respondents included three

State agencies, three water districts, one water authority, one water

users association, and three environmental organizations. We reviewed

and analyzed all comments and revised the final rule based on these

comments.

Following the apportionment of water between the Upper and Lower

Basins in the Colorado River Compact, Congress, by passing the Boulder

Canyon Project Act of December 21, 1928 (BCPA), made a permanent

apportionment of Colorado River water among the Lower Division States

for use within those States. Congress also authorized the Secretary to

allocate and distribute Colorado River water within these

apportionments to users in the Lower Division States through contracts.

Congress put the Secretary in charge of managing and operating the

Colorado River in the Lower Basin of the Colorado River system (Lower

Basin). This rule establishes a framework under which the Secretary

will implement the contractual distribution of Colorado River water in

the Lower Division States on an interstate basis.

If water apportioned for use in a Lower Division State is not

consumed in that State in any year, the Secretary may release the

unused water for use in another Lower Division State. Offstream storage

of Colorado River water and release of intentionally created unused

apportionment (ICUA) can help the Lower Division States use available

Colorado River water more effectively. This rule establishes a process

for the Secretary to release ICUA. The Secretary's authority to issue

this final rule stems from various Federal laws and executive orders,

court decisions, and decrees, particularly the BCPA, the Supreme Court

opinion (Opinion) rendered June 3, 1963 (373 U.S. 546) and the decree

entered March 9, 1964 (376 U.S. 340) (Decree), in Arizona v.

California, as supplemented and amended. A thorough description of

these authorities may be found in the Background section of the

proposed rule published December 31, 1997, at 62 FR 68493.

Several State agencies commented that the narrative should be

changed. In response to these comments, we are correcting two

statements that were contained in the first paragraph of the preamble

to the proposed rule under II. Background.

First, the statement that: ``The compact defined the Colorado River

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

a Lower Basin,'' was incorrect and should have read: ``The compact

defined the Colorado River Basin and divided it into two sub-basins, an

Upper Basin and a Lower Basin. The compact further specified which

States are Upper Division States and which States are Lower Division

States.''

Second, the proposed rule preamble cited the Colorado River

Compact, approved August 19, 1921, as the source of the definition for

``consumptive use.'' The correct source of this definition is the

Decree.

Several respondents, particularly State agencies, expressed concern

that some of the terms in the preamble and the proposed rule could be

interpreted in ways that are contrary to existing law because of

imprecise wording. These respondents stated the rule should facilitate

more efficient use of unused apportionment and surpluses within the

existing authority of the Secretary under the Law of the River. We

agree that this rule only formalizes the procedures for the Secretary

to follow in considering, participating in, and administering Storage

and Interstate Release Agreements and does not expand or

[[Page 58987]]

create authority to do so. The Secretary has the authority, under the

Law of the River, to allocate and distribute waters of the mainstream

of the Colorado River in the Lower Basin consistent with the Decree.

II. Final Rule as Adopted

Changes Made in This Final Rule

We have concluded that a number of changes from the proposed rule

are necessary and appropriate to respond to comments. These revisions

clarify the basic intent of the proposed rule and are summarized in the

following paragraphs.

Restatement of Title and Purpose of the Rule. We have

clarified the purpose of this rule in Sec. 414.1. This rule establishes

a procedural framework for the Secretary to follow in considering,

participating in, and administering Storage and Interstate Release

Agreements among the Lower Division States that would permit State-

authorized entities to store Colorado River water offstream, develop

ICUA, and make ICUA available to the Secretary for release and use in

another Lower Division State utilizing Storage and Interstate Release

Agreements. Colorado River water stored in order to develop ICUA will

always be put to use in the Storing State.

Under this rule, the authorized entity in the Storing State

(storing entity) will not redeem storage credits for delivery to the

Consuming State. For this reason, the terms ``storage credits'' and

``redemption'' are not necessary and have been deleted. Instead, when

the authorized entity in the Consuming State (consuming entity)

requests water under a Storage and Interstate Release Agreement, the

storing entity will reduce the Storing State's consumptive use of

Colorado River water, thereby developing ICUA. The Secretary will

release the ICUA to the consuming entity for use in the Consuming

State.

Definitions. We added several definitions from the

Compact, including ``Colorado River Basin,'' ``Colorado River System,''

and ``Upper Division States,'' and added, deleted, or modified several

other definitions in this rule to clarify the intent where necessary.

New definitions were also added for ``BCPA,'' ``consuming entity,''

``storing entity,'' and ``water delivery contract.'' The following

definitions were deleted: ``Contractor,'' ``Federal entitlement

holder,'' ``Present perfected right or PPR,'' ``storage credit,'' and

``unused entitlement.'' The definition for ``Interstate Storage

Agreement'' was revised and the term used in the rule was renamed

``Storage and Interstate Release Agreement.''

We redefined ``authorized entity'' creating a two-part definition.

As to a Storing State, for purposes of this rule, an authorized entity

is defined as an entity in the Storing State that is expressly

authorized by the laws of that state to enter into Storage and

Interstate Release Agreements and to develop ICUA. As to a Consuming

State, for purposes of this rule, an authorized entity is defined as an

entity in the Consuming State that has authority under the laws of that

State to enter into Storage and Interstate Release Agreements and to

acquire the right to use ICUA.

Storage of Water. In the proposed rule, we did not clearly

describe the type of water that is eligible to be stored under a

Storage and Interstate Release Agreement. This rule, in

Sec. 414.3(a)(2), explains that the water stored within a Storing State

for future use under a Storage and Interstate Release Agreement is

water that would otherwise be unused in the Storing State, but that is

within the Storing State's basic or surplus apportionment. It is

important, as a policy matter, that water be offered to all entitlement

holders in a Storing State before it is stored for interstate purposes

so that, as one commenting State noted, a State-authorized entity will

not be put in a position of ``competition with the legal right to

deprive lower priority entitlement holders (in the Storing State) of

their Colorado River water.'' Accordingly, in order to qualify as

unused apportionment, the water within the Storing State's basic or

unused apportionment that is stored for interstate transactions under

this rule must be offered first to all entitlement holders within the

Storing State.

The rule, in a new Sec. 414.3(a)(3), explains that the Consuming

State's unused basic or unused surplus apportionments may also be

stored in the Storing State to support an interstate water transaction.

We also clarified in this section that unused apportionment of the

Consuming State may be made available for storage in the Storing State

only in accordance with Article II(B)(6) of the Decree. If unused

apportionment from the Consuming State is to be stored under a Storage

and Interstate Release Agreement, the rule provides that the Secretary

will make unused apportionment of the Consuming State available to the

storing entity in accordance with the terms of a Storage and Interstate

Release Agreement. This rule also has a new Sec. 414.3(a)(6) that

provides that a Storage and Interstate Release Agreement must identify

a procedure for the Secretary to follow to verify and account for the

quantity of water stored in accordance with the Storage and Interstate

Release Agreement.

Development of ICUA. We added a requirement in

Sec. 414.3(a)(9) that the Storage and Interstate Release Agreement must

describe the notice given to entitlement holders, including Indian

tribes, of opportunities to participate in the development of ICUA. We

added a requirement in Sec. 414.3(a)(10) that the storing entity must

identify the quantity, the means, and the entity by which ICUA will be

developed. We also added a paragraph in Sec. 414.3(a)(11) to require

the Storage and Interstate Release Agreement to specify the procedure

for verification of the development of the ICUA. Both the means by

which ICUA will be developed and the method of verification will be set

forth in the Storage and Interstate Release Agreement and may vary

according to the transaction. However, the means to develop ICUA must

be consistent with the laws of the Storing State. Finally, under the

final rule, nothing in the Storage and Interstate Release Agreement

shall limit the Secretary's authority to use independent means to

verify the existence of ICUA.

Release of ICUA. We modified Sec. 414.3(a) to reflect that

the Secretary will be a party to Storage and Interstate Release

Agreements. We added a new Sec. 414.3(a)(12) that states that the

Storage and Interstate Release Agreement will specify that the

Secretary will only release ICUA to the consuming entity and will not

release it to other entitlement holders. This section requires the

release of ICUA be done in accordance with the terms of the Storage and

Interstate Release Agreement, the BCPA, Article II(B)(6) of the Decree,

and all other applicable laws and executive orders. We added a

requirement in Sec. 414.3(a)(13) that the Storage and Interstate

Release Agreement specify that ICUA will be released to the consuming

entity only in the year and to the extent that ICUA is developed by the

storing entity. We added a requirement in Sec. 414.3(a)(14) that the

Secretary would only release ICUA after determining that all necessary

actions have been taken under the rule. We added a requirement in

Sec. 414.3(a)(15) that the Secretary, before releasing ICUA, must first

determine that the storing entity stored water in sufficient quantities

to support the development of ICUA requested by the consuming entity

and be satisfied that the storing entity either (i) has developed the

quantity of ICUA requested by the

[[Page 58988]]

consuming entity, or (ii) will develop the quantity of ICUA requested

by the consuming entity under Sec. 414.3(f). We renumbered

Sec. 414.3(a)(9) as Sec. 414.3(a)(16) and changed the indemnification

to relate to actions of the non-Federal parties to a Storage and

Interstate Release Agreement. We renumbered Sec. 414.3(a)(10) as

Sec. 414.3(a)(17).

This final rule also includes a new Sec. 414.3(e) that addresses

the need for a valid contract with the Secretary in accordance with

Section 5 of the BCPA. The release or diversion of Colorado River water

for storage under this part must be supported by a Section 5 water

delivery contract, except for the storage of Article II(D) (of the

Decree) water by Federal or tribal entitlement holders. The release or

diversion of Colorado River water that has been developed or will be

developed as ICUA under this part must also be supported by a Section 5

water delivery contract. This section states that the Section 5 water

delivery contract requirement of the BCPA may be satisfied by direct

contracts with the Secretary, or by valid subcontracts with entitlement

holders authorized to enter into subcontracts, or in the case of a

consuming entity, by the Storage and Interstate Release Agreement

itself. When a valid contract is in place to support the release or

diversion of Colorado River water for storage, no additional authority

will be required by the Secretary to authorize the storage, through a

Storage and Interstate Release Agreement or otherwise.

We also have added a new Sec. 414.3(f) that allows anticipatory

releases of ICUA before the actual development of ICUA by the storing

entity. This addition was made based on comments received that the

demand patterns for Colorado River water in the lower basin vary

widely. The times when the storing entity and the consuming entity

demand water will not necessarily be concurrent. Thus, the consuming

entity may have a need for ICUA before the storing entity would

decrease its diversions of Colorado River water in order to develop the

ICUA. We added Sec. 414.3(f) to the rule to allow the consuming entity

to have the use of ICUA before its development by the storing entity.

These anticipatory releases can only be made in the same year in which

ICUA will be developed. Additionally, before an anticipatory release,

the storing entity must certify to the Secretary that ICUA will be

developed before the end of the year in order to support an early

release.

Financial considerations. We added a new Sec. 414.3(b)

which states that the Secretary will not execute a Storage and

Interstate Release Agreement that has adverse impacts on the financial

interests of the United States. This section also provides that

financial arrangements between and among non-Federal parties relating

to the Storage and Interstate Release Agreement need not be included in

the Storage and Interstate Release Agreement. Those financial

arrangements can be set forth in separate agreements to which the

Secretary will not be a party, should the parties so desire.

Involvement of the Secretary. As noted above, we modified

Sec. 414.3(a) to provide that the Secretary will be a party to Storage

and Interstate Release Agreements. We modified Sec. 414.3(c) to

specify:

(1) That the Regional Director for the Bureau of Reclamation's

Lower Colorado Region (Regional Director) has the authority to execute

a Storage and Interstate Release Agreement on behalf of the Secretary;

(2) That the Secretary will notify the public of the Secretary's

intent to participate in negotiations to develop a Storage and

Interstate Release Agreement and provide a means for public input;

(3) That the factors to be considered in reviewing a proposed

Storage and Interstate Release Agreement include potential impacts on

tribal interests, including trust resources, and potential impacts on

the Upper Division States and comments from the State agency

responsible for Colorado River matters; and

(4) That after consideration of the listed factors, the Secretary

may execute or decide not to execute a Storage and Interstate Release

Agreement.

Stored water. We modified former Sec. 414.3(c) to conform

the wording to changes made in other parts of the rule and separated

the concepts that now appear in Sec. 414.3(a)(6) and Sec. 414.3(a)(10).

Section-by-Section Analysis of the Rule

Section 414.1 Purpose

This section explains that part 414 contains the procedures for

authorized entities in the Lower Division States to follow for entering

into Storage and Interstate Release Agreements with the Secretary for

offstream storage of Colorado River water and for the development and

release of ICUA on an interstate basis in the Lower Division States.

This rule is expected to be a first step toward improving the

efficiency associated with management of the Colorado River in the

Lower Basin. The rule is intended to be permissive in nature and

facilitate voluntary water transactions.

Section 414.2 Definitions of Terms Used in This Part

This section defines terms that are used in part 414. The following

terms are based on and are to be interpreted consistent with the

Decree: basic apportionment, Colorado River water, consumptive use,

Decree, mainstream, surplus apportionment, and unused apportionment.

The terms Colorado River Basin, Colorado River System, Lower Division

States, and Upper Division States are defined in the compact. Most of

the other terms were defined for the purposes of this rule to establish

a common understanding.

Section 414.3 Storage and Interstate Release Agreements

This section identifies the details that must be specified in a

Storage and Interstate Release Agreement regarding the storage of

Colorado River water off of the mainstream and the development and

release of ICUA. This section provides for verification of the quantity

of water stored under a Storage and Interstate Release Agreement and

verification of the quantity of ICUA developed. It also commits the

Secretary to release ICUA to the consuming entity after the storing

entity has certified to the Secretary, and the Secretary has verified,

that the quantity of ICUA requested by the consuming entity has been

developed or will be developed in that year. The release must be in

accordance with the terms of the agreement and as permitted by law.

This section also specifies the factors that the Secretary will

consider in determining whether to execute a Storage and Interstate

Release Agreement. This section allows the assignment of all or a

portion of an authorized entity's interest in a Storage and Interstate

Release Agreement to other authorized entities and provides for the

satisfaction of the water delivery contract requirement of Section 5 of

the BCPA.

This section prescribes the limited circumstances under which ICUA

can be released to a consuming entity before the development of ICUA by

the storing entity.

Section 414.4 Reporting Requirements and Accounting Under Storage and

Interstate Release Agreements

This section specifies the reporting requirements that storing

entities must follow and stipulates that this water will be accounted

for in the records maintained under Article V of the Decree.

[[Page 58989]]

Section 414.5 Water Quality

This section states that the Secretary does not guarantee the

quality of water released under Storage and Interstate Release

Agreements and further states that the United States is not liable for

damages that result from water quality problems. The section states

that the United States is not responsible for maintaining or improving

water quality unless Federal law provides otherwise. This section also

states that any entity who diverts, uses, and returns Colorado River

water must comply with all applicable water pollution laws and

regulations of the United States and the Storing and Consuming States,

and must obtain all applicable permits or licenses regarding water

quality and water pollution matters.

Section 414.6 Environmental Compliance

This section states that the Secretary will ensure environmental

compliance with the National Environmental Policy Act (NEPA), the

Endangered Species Act (ESA), and other applicable laws and executive

orders. This section states that authorized entities must prepare and

fund all necessary environmental compliance documents. This section

also specifies that the authorized entities must fund the costs

incurred by the United States in considering, participating in, and

administering the proposed agreement.

III. Tribal Issues

As explained in more detail in the following section of the

preamble (Responses to Comments), a number of Indian tribes have

expressed reservations and/or opposition to this rule. In particular,

the Colorado River Tribal Partnership, often referred to as the Ten

Tribe Partnership, composed of ten Indian tribes (Chemehuevi Indian

Tribe, Cocopah Indian Tribe, Colorado River Indian Tribes, Fort Mojave

Indian Tribe, Jicarilla Indian Tribe, Navaho Nation, Quechan Tribe,

Northern Ute Indian Tribe, Southern Ute Indian Tribe and Ute Mountain

Indian Tribe) with decreed and/or claimed water rights in the Colorado

River, has expressed opposition to this rule on the ground that it does

not provide specific and express protection of the Tribes' interests

both in making water transfers and developing tribal water on or off

their reservations.

The Department believes that this rule should and will benefit

Indian tribes, but it acknowledges that the rule has a limited scope.

The final rule provides a framework under which State-authorized

entities can request Secretarial approval to implement voluntary

interstate water transactions. The rule does not address or preclude

independent actions by the Secretary regarding Tribal storage and water

transfer activities. With regard to the activities covered by this

final rule, the Department encourages Lower Division States to enact

measures and take actions that will allow Tribes to participate in

opportunities covered by this rule. Also, the Secretary's approval of

specific transactions under the rule will be based, in part, on an

analysis of the impacts that such a transaction may have on the

interests of Indian tribes. The Department provides a fuller discussion

of these issues in the Responses to Comments section below.

IV. Responses to Comments

The following is a discussion of the comments received on the

proposed rule and the DPEA, and our responses. First, we will address

general comments and our responses. Second, we will address comments on

specific provisions in the proposed rule. Third, we will address

comments on the DPEA. Fourth, we will respond to specific comments

received during the second comment period.

Public Comments on Proposed Rule and Responses on General Issues

The following section presents public comments on the proposed rule

that are general in nature. This section includes comments on the scope

of the rule, Secretarial discretion, eligibility to be an ``authorized

entity,'' the method for development of ICUA, the timing for the

completion of the rule, tribal water rights, ground water issues,

subsidies, power issues, concerns of California entities, potential

impacts on the Upper Division States, concerns over deliveries to

Mexico, environmental concerns, and economic impacts of the rule.

Scope of the Rule

Comment: Reclamation did not hold public scoping meetings on the

rule.

Response: We have conducted this rulemaking in accordance with the

Administrative Procedure Act. The Department expanded the public

comment period for the proposed rule from 61 to 93 days. In addition to

oral comments submitted at one public hearing and one public meeting,

we received 49 comment letters from 47 respondents. Of these letters,

24 commented only on the rule, 23 commented on both the proposed rule

and the draft programmatic environmental assessment (DPEA), and 2

commented only on the DPEA.

As a result of receiving differing comments on the definition of

authorized entity and several other technical matters, we reopened the

comment period on September 21, 1998 (63 FR 50183) for a 30-day period

ending October 21, 1998. We asked interested parties to provide

comments on three specific questions. The Department received 10

letters from 11 respondents during the reopened comment period. The

respondents included three State agencies, three water districts, one

water authority, one water users association, and three environmental

organizations. We reviewed and analyzed all pertinent comments and

revised the rule based on these comments. Thus, the public has

influenced the scope and formulation of this rule.

Secretarial Discretion

Comment: Does the Secretary of the Interior have the authority to

enter into an agreement that binds future Secretaries to commit unused

apportionment to a specific user in a particular State over a multiple-

year period?

Response: Yes. The Secretary's release of ICUA in any year will be

under Article II(B)(6) of the Decree. The Decree does not preclude the

Secretary from releasing unused apportionment to a specific user in a

particular State. The Secretary will agree to release ICUA only during

the year in which it is developed by the storing entity. Moreover,

under Sec. 414.3(a)(12) of the rule, the Secretary will commit in the

Storage and Interstate Release Agreement to release ICUA after the

storing entity has certified to the Secretary, and the Secretary has

verified in accordance with Sec. 414.3(a)(15), that the quantity of

ICUA requested by the consuming entity has been developed or will be

developed in that year. Further, the ICUA released by the Secretary

will be limited to the quantity developed by a storing entity during

that year.

Eligibility To Be an Authorized Entity

Note: There is also a discussion on the contractual requirements

necessary to qualify as an authorized entity in the section of this

preamble addressing comments received during the reopened comment

period.

Comment: The most frequently mentioned comment concerned the

definition for the term ``authorized entity.'' Some thought

``authorized entity'' should be defined broadly to enable the widest

possible participation and others thought the term should be defined

very narrowly to limit participation to State agencies. Indian tribes

commented that the definition

[[Page 58990]]

should be expanded to include the tribes pursuant to the Secretary's

authority under the BCPA. Tribes further commented that the proposed

definition of ``authorized entity'' will give State government a

virtual monopoly on water marketing.

Response: We agree with the general suggestion made by a State

agency that ``authorized entity'' should be a two-part definition. This

concept was supported by several other State agencies and water

districts. As to a Storing State, for purposes of this rule, an

authorized entity is defined as an entity that is expressly authorized

by the laws of that State to: (i) Enter into Storage and Interstate

Release Agreements; and (ii) develop ICUA. As to a Consuming State, for

purposes of this rule, an authorized entity is defined as an entity

that has authority under the laws of that State to: (i) enter into

Storage and Interstate Release Agreements; and (ii) acquire the right

to use ICUA. In this way the rule is intended to be permissive in

nature but consistent with State law. We believe this two part

definition captures comments from several State agencies that while

express authority is needed to store water for use in interstate water

transactions and make ICUA available, express authority is not

necessary for a consuming State to receive and use ICUA. We reiterate

that we fully expect the Lower Division States to enact measures that

will allow the tribes to participate in opportunities covered by this

rule. Moreover, this rule does not specifically address or preclude

independent actions by the Secretary regarding tribal storage and water

transfer activities under other authorities.

We have also expanded this rule to require that non-Federal parties

to the Storage and Interstate Release Agreement provide at the

Secretary's request any additional supporting data necessary to clearly

set forth the details of the proposed transaction and the eligibility

of the parties to participate as State-authorized entities in the

proposed transaction.

Comment: It is important to acknowledge that the apportionments of

Colorado River water are made specifically to the individual States.

Therefore, it is important for the States to specifically designate the

authorized entities who are entitled to enter into Interstate Storage

Agreements (now termed ``Storage and Interstate Release Agreements'')

to ensure use of Colorado River water remains within a State's

apportionment during any year.

Response: Apportionments of Colorado River water are made for use

within each specific Lower Division State. This rule requires that the

authorized entity in the Storing State be an entity that is expressly

authorized under the laws of that State to: (i) enter into Storage and

Interstate Release Agreements; and (ii) develop ICUA. As to an

authorized entity in a Consuming State, the rule requires that it be an

entity that has authority under the laws of that State to: (i) enter

into Storage and Interstate Release Agreements; and (ii) acquire the

right to use ICUA.

Method for Development of ICUA (Forbearance)

Comment: Several respondents commented on whether the final

definition of ICUA should specify what types of measures or actions the

Secretary will approve for the development of ICUA.

Response: The measures that will be used to develop ICUA are to be

specified in each Storage and Interstate Release Agreement and must be

verifiable. The method used to develop ICUA and the appropriate method

of verification may vary according to the transaction.

The Timing for the Completion of the rule

Comment: Several respondents asked for additional time to review

the proposed rule and DPEA and questioned why the completion of the

rulemaking process appeared to be on a ``fast track.''

Response: In developing this rule we have followed the mandates of

the Administrative Procedure Act. In fact, we extended the time for

public review and comment from 61 to 93 days despite the fact that this

rule only formalizes the existing authority of the Secretary to enter

into Storage and Interstate Release Agreements and does not expand or

create this authority. Moreover, we reopened the comment period for an

additional 30 days to obtain further comments. This extended review

period has given the public numerous opportunities to review this rule.

In addition, we reviewed and analyzed the comments submitted during the

reopened comment period and revised the rule as needed. Finally, the

Secretary will notify the public of the Secretary's intent to

participate in negotiations to develop a Storage and Interstate Release

Agreement and give the public further opportunity to comment before any

specific transaction is implemented.

Tribal Water Rights

Comment: The rule should include an introductory section that

recognizes Indian holders of present perfected rights are not required

to beneficially use their water, are not subject to a loss or reduction

in their water for non-use or non-beneficial use, and are not subject

to State law or State regulatory control for the on-reservation use of

their entitlements.

Response: We recognize the unique status of present perfected

rights holders under the Decree and agree that tribal present perfected

rights holders are not subject to a loss or reduction in their water

rights for non-use. The 1979 supplemental decree entered March 9, 1979

(439 U.S. 419) by the Supreme Court in Arizona v. California quantifies

and prioritizes tribal rights to the use of Colorado River water. The

1979 supplemental decree states that: ``Any water right listed herein

may be exercised only for beneficial uses.'' We do not believe it is

necessary that the information be included in an introductory section

for the rule. We agree that Indian holders of present perfected rights

are not subject to State law or State regulatory control for the on-

reservation use of their entitlements.

Comment: Indian tribes should be permitted to enter into intrastate

or interstate agreements for offstream storage and marketing of their

unused water off the reservation under the statutory and contractual

authority vested in the Secretary.

Response: This rule does not apply to intrastate transactions. This

rule applies only to interstate transactions. As explained in more

detail below, we believe that Storage and Interstate Release Agreements

under this rule can be implemented in a manner that will provide

opportunities for tribes to benefit.

Comment: Several tribes commented that they have been unable to

fully benefit from their water rights because of the Federal

government's failure to provide the tribes with the necessary

financial, technical, and political assistance to fully develop their

water resources.

Response: We acknowledge this concern and recognize that a number

of tribes have been unable to use their entitlement due to the lack of

distribution and delivery systems. We are committed to making progress

to help tribes make better use of their water rights. For example, a

Central Arizona Project (CAP) distribution system has been built for

the Ak-Chin Tribe. A distribution system for the Fort McDowell Tribe is

under construction and we have entered into a repayment contract with

the Gila River Indian Community for construction of a CAP distribution

system. Five of the ten

[[Page 58991]]

Indian tribes with contracts for delivery of CAP water have utilized

their statutory right to lease or transfer water. More specifically,

the Ak Chin, Fort McDowell, Tohono O'odham, Salt River, and Yavapai

Prescott tribes have leased or transferred CAP water.

Comment: Indian tribes should receive compensation for their unused

or undeveloped tribal water resources because of the Federal

government's failure to provide the tribes with the necessary

assistance to fully develop their water resources.

Response: The issue of compensating the tribes in connection with

the development of tribal water rights is beyond the scope of this

rule.

Comment: The Department should permit tribal governments to market

their Central Arizona Project allocations on the same basis as the

State. Central Arizona Water Conservation District's (CAWCD) non-Indian

subcontractors have the capability to take direct delivery of CAP water

but have not taken delivery of substantial quantities, primarily for

economic reasons. Tribes with CAP allocations, with the exception of

the Ak-Chin Indian Community, are not able to take delivery or put to

use any substantial quantity of CAP water because the distribution and

delivery systems that are needed to allow the tribes to put this water

to use have not been constructed.

Response: We reiterate that we are encouraging the Lower Division

States to enact measures and take actions that will allow the tribes to

participate in opportunities covered by this rule. One such example of

tribal participation in a Storage and Interstate Release Agreement

would be affording tribes the opportunity to develop underground

storage facilities where Colorado River water could be stored. In

addition, we note that the State of Arizona is exploring the use of

facilities on tribal lands for storage of Colorado River water. Thus,

tribes could participate by leasing the use of these facilities to the

storing entity. Moreover, this rule does not specifically address or

preclude independent actions by the Secretary regarding tribal storage

and water transfer activities. As stated above, we feel that there has

been progress in helping the tribes create irrigation infrastructure or

otherwise put their CAP water to use and is committed to moving forward

with this program. Only authorized entities can store water under this

rule to support an interstate water transaction. No holders of CAP

allocations have a right to store this water for an interstate

transaction unless they can qualify as an authorized entity under this

rule. Only unused water that is not requested by an entitlement holder

(including tribes) can be stored to support a Storage and Interstate

Release Agreement. With respect to the development of ICUA, the rule

requires the Storage and Interstate Release Agreement to describe the

notice given to entitlement holders, including Indian tribes, of

opportunities to participate in the development of ICUA.

Ground Water Issues

Comment: Because banked water is fungible, the rule should address

both intrastate and interstate water storage to preclude a Storing

State from circumventing any restrictions that the Department might

impose on the storage or recovery of water stored under an Interstate

Storage Agreement (now termed a ``Storage and Interstate Release

Agreement''). Several respondents expressed concern that an authorized

entity may store water in an aquifer that is hydraulically connected to

an aquifer that holds tribal water.

Response: The rule specifies in Sec. 414.3(c) that the Secretary

will consider various factors in reviewing a proposed Storage and

Interstate Release Agreement, including potential effects on trust

resources, potential effects on entitlement holders, which includes

Indian tribes, and environmental impacts. We reiterate that intrastate

transactions are not covered under this rule.

Comment: One respondent stated that the rule should expressly

address the legal status of banked CAP water. The respondent is

concerned that the banked water will be considered CAP water under

Federal law and non-Indian water users in Arizona will accrue millions

of acre-feet of credits with the sanction of Reclamation. The

subsequent recovery of the stored water will result in significant

increases in ground water pumping over and above that currently

authorized in accordance with State law and the tribes might be

precluded from pumping the remaining ground water reserves because

those reserves will increasingly take on the character of CAP water.

Response: As noted in Sec. 414.3(c), the potential effects of the

proposed measures on the environment, the economy, and trust resources

are among the factors the Secretary will consider when reviewing the

proposed Storage and Interstate Release Agreement.

Comment: Revise the rule to incorporate the acre-foot for acre-foot

ground water pumping restrictions from the amended CAP master repayment

contract and the CAP agricultural subcontracts. Reclamation has a trust

responsibility to protect Indian ground water from continued ground

water mining by non-Indian interests.

Response: Nothing in this regulation modifies the ground water

protections found in the CAP contracts or limits the Department's

ability to protect trust resources. Also, as noted in Sec. 414.3(c),

the potential effects of the proposed measures on the environment, the

economy, and trust resources are among the factors the Secretary will

consider when reviewing a Storage and Interstate Release Agreement.

Subsidies

Comment: Several respondents stated that the Department should not

allow extra non-reimbursable expenses to occur in storing water or

delivering it to a new location. There were also suggestions that, with

respect to Arizona, revenue from the Interstate Storage Agreement (now

termed a ``Storage and Interstate Release Agreement'') should be

collected to help repay CAWCD's debt to the United States for the CAP.

Response: We agree that a proposed Storage and Interstate Release

Agreement cannot obligate the United States to incur extra non-

reimbursable expenses to store water or deliver it to new locations.

The Secretary will review the provisions of every proposed Storage and

Interstate Release Agreement for its financial impacts on the United

States and will not execute any agreements that may have adverse

financial impacts on the United States. In addition, the United States

is currently seeking to resolve the recovery of CAWCD's debt to the

United States.

Power Issues

Comment: Several respondents stated that Reclamation should analyze

the impacts of the rule on power customers in the State of Arizona.

When water passes through the Hoover and Davis generators on the way to

storage in Arizona, there will be additional power production but CAWCD

will incur increased pumping costs to move the water to storage. When

stored water is withdrawn by a Nevada entity in the future, less water

will pass through the Hoover and Davis generators, resulting in less

power production at those dams. When Arizona ground water pumpers who

take CAP water through in-lieu storage are required to go back to

ground water pumping, they may require more power during years when

stored water is withdrawn from the bank and generation is reduced at

Hoover and Davis Dams. The rule should provide for compensation of

power customers to protect them from subsidizing water banking.

[[Page 58992]]

Response: Under this rule, the offstream storage of Colorado River

water and the Secretary's release of ICUA may influence the timing of

power generation at the Hoover, Parker, and Davis powerplants.

Reclamation conducted an analysis to evaluate the potential impacts of

this rule on Hoover and Parker-Davis power customers. The analysis

reflects that under this rule the quantity of energy foregone in any

one year between 1998 and 2017 will result in a loss of less than 0.5

percent. Between 1998 and 2017, the quantity of Colorado River water

released from mainstream reservoirs will be equivalent to the quantity

that otherwise would have been released without the implementation of

this rule.

Section 6 of the BCPA notes ``That the dam and reservoir provided

for by section 1 hereof shall be used: First, for river regulation,

improvement of navigation, and flood control; second, for irrigation

and domestic uses and satisfaction of present perfected rights in

pursuance of Article VIII of said Colorado River compact; and third,

for power.'' The Secretary manages and operates these reservoirs for

multiple, often conflicting purposes, through powers vested by

Congress. The principal source of the Secretary's power is the contract

power under Section 5 of the BCPA to allocate and distribute mainstream

water within the boundaries established by that Act. Each year, the

Secretary develops and adopts an Annual Operating Plan (AOP) for the

Colorado River reservoirs. During the AOP process, the Secretary

consults with the Basin States and other interested parties, including

the power users. The Secretary is mindful of the Federal contracts with

power users for supply of electric service from hydroelectric

powerplants on the Colorado River and will seek to minimize changes in

power production that result from the Secretary's activities regarding

river operations. However, because of Section 6 of the BCPA, power

users are a junior priority for use of Colorado River water.

Concerns of California Entities

Comment: Several California entities expressed concern that the

rule should acknowledge and be consistent with the comprehensive plan

being developed by California water agencies to reduce California's

future use of Colorado River water (California 4.4 Plan).

Response: The Department places great emphasis on the necessity for

the implementation of a California 4.4 Plan. We do not, however,

believe that this rule needs to address the California 4.4 Plan. This

rule is intended to be of general application and to apply equally to

each of the three Lower Division States.

Comment: Some respondents asked for assurance that the rule will

provide for storage of conserved water, such as water that is

anticipated to result from water conservation in the Imperial

Irrigation District (IID) that is proposed to be transferred to the San

Diego County Water Authority (SDCWA).

Response: The proposed transfer of water from IID to SDCWA is an

intrastate transaction that is not covered by the rule. For conserved

water to be stored by an authorized entity for purposes of an

interstate water transaction under this rule, it must first be offered

to all entitlement holders in the State in which it was conserved.

Comment: In years when surplus water is needed to keep Metropolitan

Water District's Colorado River Aqueduct full, a conflict will arise

among entities who claim surplus water if the Secretary does not make a

sufficient level of surplus water available to satisfy both

Metropolitan Water District's demand and diversions for offstream

storage under Interstate Storage Agreements (now termed ``Storage and

Interstate Release Agreements'').

Response: Surplus is divided among the Lower Division States under

the Decree. Surplus apportioned to the State of California under the

Decree, and thus available for use consistent with the priority system

applicable to California, is not subject to storage under this rule by

authorized entities in Nevada or Arizona unless entitlement holders in

California choose not to exercise their rights to use surplus water.

Potential Impacts on the Upper Division States

Comment: The rule should not be allowed to impact the water

supplies available to the Upper Basin and the Upper Basin should not

lose any yield or take increased risks because of increased

equalization that might occur as a result of interstate water storage

agreements.

Response: We agree with this comment from a State agency and notes

that this rule will not be used to justify more liberalized surplus

determinations that will allow an increase in equalization releases

from Lake Powell. Section 414.3(b) of this rule was modified to include

potential impacts on the Upper Division States among the factors that

the Secretary will consider in considering, participating in, and

administering a Storage and Interstate Release Agreement.

Comment: The rule should be modified to include a statement that

the rule does not change or expand the authorities under the Law of the

River or the apportionments made to the individual States under the Law

of the River. The rule should also state that its intent is to provide

for efficient use of unused apportionment and surpluses but that each

State should keep its consumptive use of Colorado River water within

the apportionments made to it under the Law of the River.

Response: We agree with this comment from a State agency that this

rule does not change or expand existing authorities under the Law of

the River or change the apportionments for use of water within the

individual States. We modified Sec. 414.1 Purpose to state this. We

also agree that each Lower Division State must operate within the

limits of the apportionment of Colorado River water made for use within

that State but do not believe it is necessary to include this statement

in the rule.

Concerns over Deliveries to Mexico

Comment: The DPEA states that a minor reduction will occur in the

quantity of surplus water available for delivery to Mexico over the

long term without explaining what a minor reduction is or what studies

have been done to quantify this.

Response: The quantity of water available for delivery to Mexico is

expected to decrease by an average of 23 thousand acre-feet (kaf)/year

from 1999-2015 when storage is occurring with the rule. This is about a

one percent decrease annually in the total quantity of water projected

to reach Mexico (2.487 million acre-feet (maf) without this rule and

2.464 maf with this rule). In addition, this decrease would affect

flood control releases only during this same time and would have only a

very minimal effect on projected surplus flow in years beyond 2015.

These projections are based on analysis completed by Reclamation

using the Colorado River Simulation Model, which is used to project

long-term conditions relating to water supply on the Colorado River

from Lake Mead to Mexico. The analysis used historical virgin runoff

data from 1906-1995 and water use or demand schedules that have been

provided by the Colorado River Basin States for the simulated future

period 1999-2015. In addition the model includes requirements in the

long-range operating criteria for the Colorado River.

Environmental Concerns

Comment: Efficiency improvements in river management and the

storage of

[[Page 58993]]

Colorado River water in underground aquifers means less water is

available for environmental purposes, such as the riparian and aquatic

ecosystems of the river, including the river and delta region in

Mexico.

Response: Offstream storage of Colorado River water under Storage

and Interstate Release Agreements should not have a measurable effect

on riparian and/or aquatic ecosystems of the river or the delta region

of Mexico. During the next few years, releases from Hoover Dam are

expected to continue to be about 10 maf/year for downstream use in the

United States and Mexico. In addition, flood control releases are

projected to average 788 kaf/year during the period 1999-2015.

Offstream storage could decrease flood control releases reaching Mexico

by an average of 23 kaf/year.

At present, Reclamation has no authority or discretion over the

type of use or location of use of Colorado River water once it reaches

Mexico. The Mexican Water Treaty of 1944 and the Opinion and Decree

control and limit Reclamation's releases from Hoover Dam to amounts

that meet the conditions within each. Water delivered to meet Treaty

requirements is diverted at Morelos Dam where Mexican law governs how

it is put to use. In times of flood control operations, Colorado River

water entering Mexico in excess of treaty requirements is under

Mexico's jurisdiction. Once flows reach the Republic of Mexico, any

uses for environmental purposes would have to be authorized by Mexico.

It is possible that implementation of this rule may create

additional flexibility to potentially make water available for fish and

wildlife purposes as part of the ongoing Lower Colorado River Multi-

Species Conservation Program (MSCP). Under this concept, water stored

offstream one year could potentially be used to meet fish and wildlife

purposes in a later year.

Comment: The level of environmental compliance proposed by

Reclamation is inadequate and Reclamation should complete a full

environmental impact statement (EIS) on the proposed rule as well as

the entire operation of the Colorado River.

Response: The programmatic environmental assessment (PEA) was

prepared to identify and clarify issues, describe the level of

environmental impacts associated with implementation of the proposed

rule, and to determine whether to prepare a Finding of No Significant

Impact (FONSI) or to prepare an Environmental Impact Statement (EIS).

Compliance for each Storage and Interstate Release Agreement will

reference and tier off from the PEA for this rule. Based on the

analysis in the PEA, consultation and coordination with the Fish and

Wildlife Service, and public input and comments, we have concluded that

implementation of the proposed rule will not have a significant effect

on the human environment. As a result, a FONSI has been prepared to

complete NEPA compliance for the rule.

As explained previously, this rule develops a framework that the

Secretary will utilize in reviewing and evaluating whether to execute a

specific transaction for offstream storage of Colorado River water

under a Storage and Interstate Release Agreement. This rule does not

increase nor abrogate the existing authority of the Secretary. When the

storing and consuming entities enter into negotiations with the

Secretary for the development of a Storage and Interstate Release

Agreement, the Secretary will have the specific details needed to

determine the potential impacts of the proposed action and can then

determine the appropriate level of NEPA compliance required for that

action.

In addition, the Department believes the preparation of an EIS on

the entire operation of the Colorado River is not required. Movement of

water will be through existing facilities on the Colorado River and is

within the current and projected routine operations of the lower

Colorado River. Thus, it is not necessary to complete a comprehensive

EIS on river operations.

Comment: Implementation of the rule may potentially impact fish and

wildlife resources along the Colorado River downstream from Lake Mead.

Response: The DPEA evaluated the potential impact to fish and

wildlife resources for a proposed scenario in which 1.2 maf would be

stored in Arizona under a Storage and Interstate Release Agreement to

allow an authorized entity in Nevada to meet its future water needs.

The effects of placing Colorado River water in offstream storage were

evaluated at two incremental storage rates, 100 kaf/year and 200 kaf/

year with future development of ICUA and the associated release of

water from Lake Mead limited to a maximum of 100 kaf, in accordance

with Arizona law, in any year.

No significant impacts were identified on fish and wildlife

resources as a result of this analysis. Consultation with the Fish and

Wildlife Service concluded that fluctuations in water surface

elevations associated with the most likely case storage and retrieval

scenarios are not likely to adversely affect listed species or their

designated critical habitat.

Economic Impacts of the Rule

Comment: The Initial Regulatory Flexibility Analysis states that

the future cost burden of obtaining alternative supplies for Southern

California water users is not attributable to or the result of the

proposed rule. The rule may reduce the quantity of Colorado River water

available for diversion to Southern California that is apportioned for

consumptive use in Arizona and/or Nevada but not consumed in those

States, making California expend funds sooner than planned to obtain

alternative water supplies.

Response: Absent the rule, each Lower Division State may store its

unused basic apportionment and surplus apportionment offstream for

future intrastate use. Arizona is currently taking all of the 2.8 maf

basic apportionment of Colorado River water available for use in

Arizona. Therefore, the only water that California may no longer be

able to use is Nevada unused basic apportionment. Nevada's consumptive

use was 245.3 kaf in 1998, resulting in 54.7 kaf of unused

apportionment. Projections show Nevada utilizing its full basic

apportionment by 2007. This rule may impact southern California in that

it enables Nevada to store its declining quantity of unused

apportionment in Arizona for the short period it may be available. To

the extent surplus is available during this time, impacts on California

are lessened. In the long run, the rule should have little net impact

on the expenditure of funds by California water users to obtain

alternative water supplies.

We reiterate that California must reduce its reliance on the

Colorado River by conserving water or obtaining alternative water

sources. California must continue moving forward in its efforts to

implement a California 4.4 Plan to live within the 4.4 maf of Colorado

River water apportioned for use in California and this rule will add

flexibility that may be of help in implementing the California 4.4

Plan.

Comment: Some tribes asserted that the rule allocates to the States

water that is reserved to the tribes and has a disproportionate,

significant, and detrimental economic impact on the tribes in the Lower

Basin.

Response: We do not agree with this view. Under the rule, only

water within a State's apportionment that is not used by entitlement

holders within that State may be stored offstream for interstate

purposes. Nothing in this rule precludes

[[Page 58994]]

any entitlement holder, including a Tribe, from using its Colorado

River water entitlement. The potential effects of the proposed measures

on the environment, the economy, and trust resources are among the

factors the Secretary will consider when evaluating the Storage and

Interstate Release Agreement. This review process will help ensure that

tribal rights will be protected under this regulation.

Comment: The Benefit-Cost Analysis shows that the overall impact of

the proposed rule is not significant. Please explain how this was

determined and what the threshold was or refer the reader to a specific

page of the Benefit-Cost Analysis for the information.

Response: The threshold for whether a proposed rule is significant

is defined in both the Small Business Regulatory Enforcement Fairness

Act and the Unfunded Mandates Reform Act of 1995. The Benefit-Cost

Analysis reflects that the proposed rule is not a major rule (impacts

are not significant) because the economic impact upon the regional and

United States economy in any one year does not exceed the threshold;

i.e., it is never greater than or equal to $100 million. However, even

though the rule does not have a significant annual economic effect on

the economy, it is still considered a significant rule because it

raises novel legal or policy issues. See pages 38-42 and 44-46 of the

Benefit-Cost Analysis to see the findings that led to the determination

of no significant economic impact.

Comment: The Executive Summary of the Benefit-Cost Analysis refers

to two water supply models, ``A70'' and ``P80.'' To better understand

the potential effects of both A70 and P80 criteria, state the water

supply benefits resulting from the P80 criterion and indicate the

incremental quantity of additional surplus water made available under

P80.

Response: The benefit-cost analysis shows that the benefits of

AWBA's banking program are smaller under P80 (a more liberal surplus

criterion that will tend to increase the risk of shortages) than A70 (a

more conservative surplus criterion that will tend to reduce the risk

of shortages). Under P80 surplus criteria, it is more likely that all

valid water demands within the Lower Division States will be met from

instream flows. Therefore, demand for ICUA by a Consuming State is

lower than under A70. Total net economic benefits for the study period

(1998-2017) at the regional level are shown at the bottom of page 2 of

the executive summary for the Benefit-Cost Analysis. Because surplus

conditions are likely to continue for several years, we did not further

analyze that alternative in the Biological Assessment (BA) that we

prepared for the proposed rule.

Comment: There were a number of editorial comments on the Benefit-

Cost Analysis and the Initial Regulatory Flexibility Analysis.

Response: We have reviewed and considered the comments submitted by

a water district and have adopted many of the suggestions into the text

of the final Benefit-Cost Analysis and the final Regulatory Flexibility

Analysis.

Comment: Some tribes commented that allowing States to use ``unused

tribal water'' and imposing limitations on the tribes'' ability to use

their reserved water potentially interfere with the tribes' protected

property rights.

Response: We do not agree with this statement. All Colorado River

water available to the Lower Division States is apportioned for use in

the individual States. Any water within a State's apportionment that is

unused by tribes or non-Indian entitlement holders is available to

junior entitlement holders in that State under the Secretary's priority

system for the Colorado River. Only water that is not used by

entitlement holders is eligible to be used for an interstate

transaction under this rule. Thus, there is no interference with tribal

property rights.

Comment: One tribe asserted that the tribes' lack of opportunity to

participate in interstate transactions on the same basis as the States

under the rule violates Title VI of the Civil Rights Act of 1964, which

states that ``No person in the United States shall, on the ground of

race, color or national origin, be excluded from participation in, be

denied the benefits of, or be subjected to discrimination under any

program or activity receiving Federal financial assistance.''

Response: We do not agree that the tribes will be denied an

opportunity to participate under this rule or that this rule results in

discrimination within the meaning of the Civil Rights Act. We will

require that all entitlement holders, whether tribal or non-tribal, are

treated equally under the rule. We will monitor efforts by the States

and authorized entities to extend benefits to the tribes under this

rule and will, in the future, assess whether we need to review or

revise this rule to provide additional opportunities to the tribes.

Public Comments on Proposed Rule and Responses on Specific

Provisions

The following section presents public comments on the proposed rule

that apply to specific provisions in the rule.

Comments Concerning the Title of the Rule

Comment: The title of the rule should not mention the ``redemption

of storage credits'' because this term lack clarity and is ambiguous.

The rule should provide that Colorado River water stored offstream

under an Interstate Storage Agreement (now termed a ``Storage and

Interstate Release Agreement'') will be used in the State in which the

water is stored and that the Secretary will release ICUA rather than

deliver storage credits.

Response: We agree with the concept suggested by several State

agencies, a water district, and a water authority and have modified the

title to read, ``Offstream Storage of Colorado River Water and

Development and Release of Intentionally Created Unused Apportionment

in the Lower Division States.''

Comments Concerning Sec. 414.1--Purpose

Comment: The purpose section should not use terminology that is

vague and implies that a Storing State will create and redeem storage

credits because the Colorado River water that is stored offstream will

always belong to the Storing State. Amend the language to establish the

intent that Storage credits will be redeemed in the State in which

water will be stored and the Secretary will release ICUA rather than

deliver storage credits under an Interstate Storage Agreement (now

termed a ``Storage and Interstate Release Agreement'').

Response: We have adopted the suggestions from several State

agencies, a water district, and a water authority to describe the

proposed transactions under this rule in terms that are clear and

unambiguous. In lieu of developing and redeeming storage credits, we

have changed this rule to reflect that the Secretary will release ICUA

to consuming entities under Storage and Interstate Release Agreements.

Comment: Because the Secretary's approval of Interstate Storage

Agreements (now termed ``Storage and Interstate Release Agreements'')

could delay approvals, the Secretary's authority for the Department's

responsibilities under the rule should be delegated to Reclamation,

subject to the right to appeal the Regional Director's decisions

through the Department.

Response: Under the rule, the Secretary will not approve the

Storage and Interstate Release Agreement but will instead be a party to

the agreement. The rule provides that the Regional Director for the

Bureau of Reclamation's Lower Colorado Region (Regional

[[Page 58995]]

Director) shall have the authority to develop, negotiate, and execute a

Storage and Interstate Release Agreement on behalf of the Secretary.

Comment: The rule should use precise terminology that cannot be

interpreted in ways that are contrary to existing law. The rule should

contain a narrative that states the actions contemplated under this

rule are deemed within the authority of the Secretary under the Law of

the River and that the rule does not change or expand the Secretary's

authorities. This narrative should emphasize the intent of the rule is

to provide for more efficient use of unused apportionment and surpluses

within the ``Law of the River.''

Response: We revised this rule in several places to clarify the

intent. In addition, we agree with the suggestion from several State

agencies and clarified the rule to state that it does not change or

expand the Secretary's authority under the Law of the River. This rule

only formalizes the existing authority of the Secretary to develop,

negotiate, and execute Storage and Interstate Release Agreements and

does not expand or create this authority. As stated in the preamble to

the proposed rule that was published on December 31, 1997, this rule

will increase the efficiency, flexibility, and certainty in Colorado

River management.

Comments Concerning Sec. 414.2--Definitions

Comment: As addressed above in the discussion of general issues,

the most frequently mentioned comment was regarding the definition for

the term ``authorized entity.''

Response: As discussed previously under general issues, we have

changed the definition of ``authorized entity'' to consist of two

parts, with different definitions for Consuming States and Storing

States. Please refer to that discussion. As a result of receiving

differing comments on the definition of authorized entity and several

other technical matters, we reopened the comment period for a 30-day

period. We requested interested parties to provide comments on three

specific questions. We received 10 letters from 11 respondents during

the reopened comment period. The respondents included three State

agencies, three water districts, one water authority, one water users

association, and three environmental organizations. We reviewed and

analyzed all comments and revised the rule based on these comments.

Please refer to that discussion.

Comment: Modify the rule to include the definitions for ``Colorado

River Basin'' and ``Colorado River System'' as defined and used in the

Colorado River Compact.

Response: We have adopted these suggestions from a State agency and

included these definitions in this rule.

Comment: Modify the definition of ``Consuming State'' to clarify

that this means the State where ICUA is or will be used.

Response: This suggestion from several entities, including State

agencies, was adopted to clarify the actual way the proposed water

transactions will work.

Comment: The narrative in the preamble for the proposed rule

incorrectly attributed the definition of ``consumptive use'' to the

Colorado River Compact of November 24, 1922.

Response: We agree with several State agencies, a water authority,

and a water district that the definition was incorrectly attributed to

the Compact. As the respondents explained, the term ``consumptive use''

is defined by Articles I(A) and I(C) of the Decree.

Comment: Modify the definition of ``Interstate Storage Agreement''

(now termed a ``Storage and Interstate Release Agreement'') to delete

reference to ``redemption of storage credits'' and make other changes

consistent with the incorporation of changes to other definitions.

Response: We agree with the suggestions from several entities,

including State agencies, that the definition should emphasize that the

Storage and Interstate Release Agreement provides terms for offstream

storage of Colorado River water by a storing entity, the subsequent

development of ICUA by the Storing State consistent with the laws of

the Storing State, a request by the storing entity to the Secretary to

release ICUA to the consuming entity, and the release of ICUA by the

Secretary to the consuming entity.

Comment: The definition for ``Interstate Storage Agreement'' (now

termed a ``Storage and Interstate Release Agreement'') in the proposed

rule states that the agreement may include other entities determined to

be appropriate to the performance and enforcement of the agreement

without indicating who those entities might be or who makes the

determination that their inclusion is appropriate.

Response: This rule has been revised to clarify that the decision

to include other entities will be determined by the consuming and

storing entities and the Secretary during the negotiation of a Storage

and Interstate Release Agreement.

Comment: Delete the term ``storage credit'' from the proposed rule

as it lacks clarity.

Response: We have adopted this change, suggested by several

entities, including State agencies, a water authority, and a water

district.

Comment: Modify the definition of ``Storing State'' to clarify that

water stored offstream under an Interstate Storage Agreement (now

termed a ``Storage and Interstate Release Agreement'') will be used in

the Storing State in place of water within the Storing State's

apportionment that the Storing State otherwise would have diverted from

the mainstream.

Response: We have modified the definition of Interstate Storage

Agreement and renamed it ``Storage and Interstate Release Agreement''

in this rule. The modified definition reflects that water stored

offstream under a Storage and Interstate Release Agreement will be used

in the Storing State.

Comment: Delete the definition of ``unused apportionment'' and in

its place, insert definitions for ``unused basic apportionment'' and

``unused surplus apportionment.'' The intent of the suggestion is to

clarify that, with the determination of a water supply condition by the

Secretary, a State is receiving either a normal, surplus, or shortage

apportionment. Also, revise the definition to clarify that to be

unused, the water otherwise would not have been diverted and that water

conserved or saved through an agreement between two entitlement holders

is eligible for storage.

Response: The Department did not adopt these changes that were

suggested by a water district. The AOP determines whether a State is

receiving a normal, surplus, or shortage apportionment, and that

decision is unaffected by this rule. Also, only water that is not used

by entitlement holders in the applicable State's priority system for

purposes other than storage for use in interstate transactions is

eligible for storage for use in interstate transactions under this

rule.

Comment: Delete the term ``unused entitlement'' from the proposed

rule.

Response: We have adopted this change, suggested by several

entities, including State agencies and a water district.

Comments Concerning Sec. 414.3--Storage and Interstate Release

Agreements and Redemption of Storage Credits

Comment: As discussed earlier under Purpose, there should be a

statement that the actions contemplated under this rule are within the

Secretary's authority

[[Page 58996]]

under the Law of the River and that it is not the intent of this rule

to change or expand the Secretary's authorities. This narrative should

also emphasize an intent to provide for more efficient use of unused

apportionment and surpluses within the ``Law of the River'' but specify

that water users in the Lower Division States must plan to live within

the apportionments made to them under the ``Law of the River.''

Response: We agree with this suggestion from a State Agency to

clarify that this rule is deemed to be within but does not expand the

Secretary's authority. The preamble to this rule includes a section to

provide further explanation of the purpose of this part. This rule is

not intended to change or expand the Secretary's authorities under the

``Law of the River.'' This rule is intended to facilitate more

efficient use of unused apportionment and surpluses within the ``Law of

the River'' in the Lower Division States.

We also believe that this rule, in conjunction with the

implementation of the California 4.4 Plan and the development of

surplus criteria, will provide a framework for the Lower Division

States to hold consumption within the apportionments available for use

within those States.

Comment: Conform this section of the rule with previous changes

that delete the reference to the term, ``redemption of storage

credits.''

Response: We have adopted this change, suggested by several

entities, including State agencies, a water authority, and a water

district. As discussed previously, this rule will provide for offstream

storage of Colorado River water in a Storing State, the subsequent

development of ICUA by the storing entity for release by the Secretary

to a consuming entity, and the recovery of the stored water for use in

the Storing State.

Comment: Delete the reference to Article II(B)(6) of the Decree in

the first sentence under Sec. 414.3(a) because the Decree does not cite

a legal authority for entering into Interstate Storage Agreements (now

termed ``Storage and Interstate Release Agreements'').

Response: We agree that ``Storage and Interstate Release

Agreements'' are not referenced in the Decree and have modified

Sec. 414.3(a) of the rule. However, Article II(B)(6) of the Decree

provides authority for the Secretary to (1) make an annual

determination under this rule of the availability of ICUA and (2)

release any such water in accordance with the terms of a Storage and

Interstate Release Agreement.

Comment: Delete the last sentence of Sec. 414.3(a), that reads,

``An Interstate Storage Agreement (now termed an ``Storage and

Interstate Release Agreement'') will allow a storing entity 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.''

Response: We agree with this comment from a State agency and have

modified this rule to incorporate this change.

Comment: A senior priority holder in California should not be

allowed to agree to make available unused apportionment for storage in

another State without first obtaining the agreement of California's

junior priority holders.

Response: Under this rule, only water that is unused by all

entitlement holders in the applicable State's priority system is

eligible for storage by an authorized entity for use in an interstate

transaction.

Comment: One respondent noted that its contract with the Secretary

allows it to request Reclamation to approve an exchange, lease, or

transfer of its water entitlement. The respondent further stated its

intent to pursue interstate marketing opportunities and position its

Colorado River water supply as an unused apportionment that may be

released annually for use in the other Lower Division States under the

Decree.

Response: The Department recognizes that the entitlement holder's

contract allows it to request approval of an exchange, lease, or

transfer and notes that any change in the place of use or type of use

of the entitlement is subject to the Secretary's approval. The

development of ICUA under a Storage and Interstate Release Agreement

may involve the exchange, lease, or transfer of Colorado River water

under an individual entitlement holder's contract. Any such exchange,

lease, or transfer would be subject to Secretarial approval unless the

entitlement holder's contract specifies otherwise. Moreover, to

participate under this rule as an authorized entity in a Storing State,

that entity must be expressly authorized under State law.

Comment: The rule should be modified to allow authorized entities

in California and Nevada to have equal access to store that portion of

Arizona's Colorado River apportionment that is not otherwise put to use

by entitlement holders within Arizona. Also, authorized entities in

California and Nevada should have equal access to the quantity of ICUA

that Arizona will make available to consuming entities when those

entities request it.

Response: We recognize these concerns expressed by a State agency

and a water district but do not believe it is appropriate to establish

an allocation method in this rule. Storage and Interstate Release

Agreements are voluntary interstate water transactions. The Secretary

will not require authorized entities of one State to enter into Storage

and Interstate Release Agreements with authorized entities in another

State. We encourage each storing entity to consider the needs of all

consuming entities under prospective Storage and Interstate Release

Agreements.

Comment: Modify Sec. 414.3(a) to allow a more general description

of the entities by which Colorado River water will be stored and the

storage facilities in which it will be stored.

Response: We did not accept this recommendation. It is necessary to

clearly identify the actual entity that will store Colorado River water

under the Storage and Interstate Release Agreement and the facility

where it will be stored so that a thorough review of the impacts of the

storage on environmental and trust resources can be performed.

Comment: Specify in Sec. 414.3(a) that the water to be stored will

be within the basic apportionment or the surplus apportionment of the

Storing State or unused basic apportionment or unused surplus

apportionment of the Consuming State. Any unused apportionment of the

Consuming State may only be made available by the Secretary to the

Storing State under Article II(B)(6).

Response: We agree with this suggestion from several State agencies

and a water district, and have modified this rule to incorporate this

change.

Comment: Specify in Sec. 414.3(a) the maximum quantity of ICUA that

will be available for release to the consuming entity under the

agreement.

Response: We agree with this suggestion from several State

agencies, a water authority, and a water district. We have modified

this rule to incorporate this change.

Comment: Specify in Sec. 414.3(a), by January 31, the maximum

quantity of ICUA that will be available for release and delivery to the

consuming entity under the Interstate Storage Agreement (now termed a

``Storage and Interstate Release Agreement'') in that current year.

Response: We did not accept this suggestion from a water district.

The rule leaves the determination of this detail to the Storage and

Interstate

[[Page 58997]]

Release Agreement that will be negotiated among the parties to that

agreement. Further, this subject involves accounting matters that are

set forth in Sec. 414.4.

Comment: Specify in Sec. 414.3(a) that the consuming entity may not

request ICUA in a quantity that exceeds the quantity of water then in

storage under an Interstate Storage Agreement (now termed a ``Storage

and Interstate Release Agreement'') in the Storing State. Several

respondents suggested deleting the statement from the proposed rule

that water then in storage under an Interstate Storage Agreement (now

termed a ``Storage and Interstate Release Agreement'') may not be

recovered within the same calendar year in which the water was stored

offstream. Another respondent suggested retaining this statement.

Response: We agree with the suggestion from several State agencies,

a water authority, and a water district that the Storage and Interstate

Release Agreement must specify that the consuming entity may not

request a quantity of ICUA in excess of the quantity of water then in

storage under a Storage and Interstate Release Agreement. The quantity

of water stored under a Storage and Interstate Release Agreement serves

as the basis for the quantity of ICUA that may be developed under the

Storage and Interstate Release Agreement. This rule allows Colorado

River entitlement holders in the Storing State the option to use the

water previously stored under a Storage and Interstate Release

Agreement, under a direct contract with the Secretary, or under a valid

subcontract with an entitlement holder authorized to enter into

subcontracts. However, the rule also allows other means consistent with

Storing State law to develop ICUA. We do not agree with the suggestion

from a water district to retain the requirement that water stored under

a Storage and Interstate Release Agreement may not be recovered within

the same year the water is stored offstream. The parties may agree to

permit the consuming entity to request and receive ICUA during the same

year water is stored under a Storage and Interstate Release Agreement.

However, the applicable law of the Storing State may not permit a

consuming entity to request the delivery of a quantity of ICUA that

exceeds the quantity of unused apportionment that was stored offstream

for that consuming entity under a Storage and Interstate Release

Agreement as of the end of the prior year.

Comment: Modify Sec. 414.3(a) to specify that, by a date certain to

be specified in the Interstate Storage Agreement (now termed a

``Storage and Interstate Release Agreement''), the consuming entity

will provide notice to the Lower Division States and to the Secretary

of its request for a specific quantity of ICUA in the following

calendar year.

Response: We agree with this suggestion from two State agencies and

a water authority and have modified this rule to incorporate this

intent. The revised provision is now renumbered Sec. 414.3(a)(7). The

rule will allow the parties and the Secretary to reach a mutually

acceptable date for the notice in the Storage and Interstate Release

Agreement.

Comment: Modify Sec. 414.3(a) to specify that the date when the

consuming entity will provide notice to the Lower Division States and

to the Secretary will be the later of (i) November 30 or (ii) within 45

days after the AOP has been transmitted to the Governors of the

Colorado River Basin States. This change will allow more flexibility in

case the AOP is not transmitted by the Secretary to the Governors

before November 30, as has occurred sometimes in the past.

Response: We did not incorporate this suggestion from a water

district into this rule. It is possible that the processes for the

Secretary to send the AOP to the Governors and the Colorado River

entitlement holders to complete their annual water orders may not be

completed until late in the year, beyond November 30. However, we agree

with several respondents that the date when the authorized entity is to

provide notice is better incorporated into the Storage and Interstate

Release Agreement.

Comment: Modify Sec. 414.3(a) to clarify that a storing entity,

after receiving a notice of a request for a specific quantity of ICUA,

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 the requested quantity of ICUA to be released for use in the

Consuming State.

Response: We agree with this suggestion from a State agency, a

water authority, and a water district and have modified this rule to

incorporate this change. The revised provision is now renumbered

Sec. 414.3(a)(8).

Comment: Modify Sec. 414.3(a) to provide that the Interstate

Storage Agreement (now termed a Storage and Interstate Release

Agreement will specify which types of actions may be taken in the

Storing State to develop ICUA.

Response: We agree with this suggestion from a State agency, a

water authority, and a water district and have modified this rule to

incorporate this change. The modified rule also requires the storing

entity to specify the means by which the development of the ICUA will

be enforceable by the storing entity. The revised provision is now

renumbered Sec. 414.3(a)(9).

Comment: The rule should be modified to specify that an Interstate

Storage Agreement (now termed a ``Storage and Interstate Release

Agreement'') will require the storing entity to certify that ICUA is

developed that otherwise would not exist and to specify the quantity,

the means, and the entity by which the unused apportionment will be

developed.

Response: We agree with this suggestion by a State agency, a water

authority, and a water district and have modified and renumbered this

provision Sec. 414.3(a)(10) to incorporate this change into this rule.

We do not agree with the comment from a State agency that it is

necessary to specify the procedure by which certification is provided

to the Secretary. However, the Secretary and the authorized entities

may specify the certification procedure in the Storage and Interstate

Release Agreement if they so choose.

Comment: The rule should provide guidance as to how the development

of ICUA will be verified.

Response: We agree with the suggestion from a State agency and a

water authority that this rule should require a Storage and Interstate

Release Agreement to specify a procedure for verification of the ICUA

appropriate to the manner in which it is developed. This rule has been

modified to incorporate this requirement into a new Sec. 414.3(a)(11).

In addition, a new Sec. 414.3(a)(6) was included in this rule to

require the Storage and Interstate Release Agreement to specify a

procedure for verification of the quantity of water stored in the

Storing State under a Storage and Interstate Release Agreement.

Further, Sec. 414.3(a)(10) specifies that the storing entity must

certify to the Secretary that ICUA has been or will be developed that

would not otherwise exist. The Secretary may use independent means to

verify the existence of ICUA.

Comment: The Secretary should review the water orders and release

the AOP before actions are taken to develop or release ICUA.

Response: We do not agree with this suggestion from a State agency.

The respondent raised a concern that this rule might allow a storing

entity to increase its water order to include the quantity of requested

ICUA. The authorized entity could then decrease its order, pump ground

water or release

[[Page 58998]]

surface water that it otherwise would have used anyway, claim credit

for developing ICUA, and receive payment for actions it would not have

taken. We do not believe it is necessary for the consuming entity to

postpone its request for ICUA until after the annual water orders and

the AOP are completed. We believe that information on water orders

should be shared openly and up front in the interest of better regional

cooperation. The open nature of these water schedules will help ensure

that an initial water order is legitimate and that it is not

intentionally increased in order that a Storing entity could get credit

for ICUA without taking the actions necessary to develop that ICUA.

Comment: Modify Sec. 414.3(a) to include a requirement for the

storing entity to provide evidence that the stored water has not

migrated out of the State, out of the United States, to a saline sink,

or returned to the mainstream.

Response: We do not agree with the comment from a water district

that this provision is necessary in this rule. We will require full

environmental compliance on all Storage and Interstate Release

Agreements and will consider the potential migration of ground water

storage when evaluating the effects of storage on the environment and

trust resources.

Comment: Modify Sec. 414.3(a) to clarify that the parties to the

Interstate Storage Agreement (now termed a ``Storage and Interstate

Release Agreement'') other than the United States will indemnify the

United States from actions taken by parties to the agreement other than

the United States, not for the broader actions of the United States.

Response: We agree that the United States is covered by the Federal

Tort Claims Act and other laws and have revised this paragraph, now

designated Sec. 414.3(a)(16), to incorporate this comment by a water

district and an irrigation district.

Comment: The Department should protect the water in Indian tribes'

ground water basins by not allowing the storage or recovery of water

from ground water basins that are hydraulically connected to the

tribes' ground water basins.

Response: The Department acknowledges its obligation to protect

tribal resources. Section 414.3(b) provides that the Secretary will

consider potential effects on trust resources and entitlement holders,

which include Indian tribes with rights to the use of Colorado River

water, in considering, participating in, and administering a Storage

and Interstate Release Agreement.

Comment: Modify the following elements of Sec. 414.3(b), now

renumbered Sec. 414.3(c), to require the Secretary to notify the public

of a request to approve an Interstate Storage Agreement (now termed a

``Storage and Interstate Release Agreement''), provide a more

definitive time for the Secretary to respond to the request, provide

for execution of necessary contracts to authorize the diversion and use

of Colorado River water, and provide an appeals process.

Response: We have modified the rule to provide in Sec. 414.3(a)

that the Secretary will be a party to a Storage and Interstate Release

Agreement. We modified Sec. 414.3(c) to specify that the Regional

Director for the Bureau of Reclamation's Lower Colorado Region

(Regional Director) shall have the authority to negotiate, execute, and

administer a Storage and Interstate Release Agreement on behalf of the

Secretary. The rule does not provide for an appeal of the Regional

Director's decision whether to execute a particular Storage and

Interstate Release Agreement. The necessity of contracts to authorize

the diversion of water under a Storage and Interstate Release

Agreement, except for storage of Article II(D) (of the Decree) water by

Federal or tribal entitlement holders, is addressed in Sec. 414.3(e) of

the rule. The rule allows for the storage of Colorado River water

either through a direct contract with the Secretary or through a valid

subcontract with an entitlement holder authorized by the Secretary to

enter into such subcontracts. The Storage and Interstate Release

Agreement to which the Secretary will be a party satisfies the Section

5 requirement for the release or diversion of ICUA to the consuming

entity in the Consuming State.

Comment: Amend Sec. 414.3 (c) to conform the wording to other

changes made that delete use of the term ``redemption of storage

credits.''

Response: We agree with the suggestions from several State

agencies, a water authority, and a water district, and have modified

this rule to more clearly describe the intent of the Storage and

Interstate Release Agreements. The revised wording specifies that,

after receiving a notice of a request for release of ICUA, the storing

entity will certify to the Secretary that sufficient water has been

stored for the Storing State to support the development of the

requested quantity of ICUA. The revised paragraph is designated

Sec. 414.3(a)(10).

Comment: Amend Sec. 414.3(d) to conform the wording to other

changes that delete use of the term redemption of storage credits.

Also, specify that ICUA is available only for use by the consuming

entity.

Response: We agree with the suggestions from several State

agencies, a water authority, and a water district and has modified this

rule to more clearly describe the intent of the Storage and Interstate

Release Agreements. The revised wording substitutes the term

``intentionally created unused apportionment'' (``ICUA'') for the less

definitive term ``redemption of storage credits.'' In addition, the

revised rule clarifies that ICUA will be released only for use by the

consuming entity.

Comment: The rule should provide for a contractual commitment by

the Secretary to release to a consuming entity ICUA that exists as a

consequence of implementation of the Interstate Storage Agreement.

Response: We modified the rule in Sec. 414.3(a) to provide that the

Secretary will be a party to Storage and Interstate Release Agreements.

Sections 414.3(a)(12) through 414.3(a)(15) provide, among other things,

that the Secretary will commit in the Storage and Interstate Release

Agreement to release ICUA but only if all necessary actions are taken

under the rule, if all laws and executive orders have been complied

with, and if the Secretary has first determined that ICUA has been

developed or will be developed by a storing entity.

Comment: A Federal agency has commented as to whether actual

storage of Colorado River water must take place in those instances

where both storage and recovery take place in the same year.

Response: The rule does allow for the release and delivery of ICUA

in the same year in which it is developed. Consistent with the laws of

the storing state, if recovery and development occur in the same year,

and section 414.3(f) (Anticipatory Release of ICUA) is invoked, the

Secretary will not require actual storage of water subsequent to the

release of ICUA.

Comments Concerning Sec. 414.4--Reporting Requirements and Accounting

Under Storage and Interstate Release Agreements

Comment: Amend Sec. 414.4 to provide more flexibility in the

reporting date and to clarify the intent that water stored under an

Interstate Storage Agreement (now termed a ``Storage and Interstate

Release Agreement'') will be recovered and used in the State in which

water will be stored and it will be ICUA water rather than credits that

the Secretary will release under an Interstate Storage Agreement (now

termed a ``Storage and Interstate Release Agreement''). The language

should reference the Interstate Storage

[[Page 58999]]

Agreements (now termed ``Storage and Interstate Release Agreements'')

that establish the basis for the accounting for the water to be

released by the Secretary for use in the Consuming State.

Response: We agree with this suggestion from several State

agencies, a water authority, and a water district, and have revised

this rule to more clearly describe the intent of the Storage and

Interstate Release Agreements. The reporting date was made more

flexible by allowing the date to be agreed upon by the parties to the

Storage and Interstate Release Agreement and specified in the Storage

and Interstate Release Agreement. To be consistent with other changes

made in this rule, this provision refers to the water stored under a

Storage and Interstate Release Agreement as water that is available to

the storing entity. The Secretary will account for water stored under a

Storage and Interstate Release Agreement and available to support the

development of ICUA. The Secretary will release ICUA for use by a

consuming entity when the provisions of this rule and the Storage and

Interstate Release Agreement have been satisfied.

Comment: It is not clear how the ``cut to the aquifer'' or losses

from storage or transportation are determined or if they are arbitrary

or based on actual data. It is not clear whether this detail is

specific to a State's regulation or the Interstate Storage Agreement

(now termed a ``Storage and Interstate Release Agreement'').

Response: A storing entity will determine how much stored water

must remain in an aquifer based on the Storing State's applicable law

and/or the policy of the authorized entity. In Arizona, that decision

is based on State law which requires that 5 percent of water placed in

offstream storage remain in the ground to replenish the aquifer. The

authorized entity will determine, consistent with applicable State law,

how much stored water can be recovered when that authorized entity

decreases its diversions and consumptive use of Colorado River water in

the future to develop ICUA that the Secretary will release for use by a

consuming entity.

Comments Concerning Sec. 414.5--Water Quality

Comment: Modify Sec. 414.5(a) to clarify that the interstate

agreements referred to are Interstate Storage Agreements (now termed

``Storage and Interstate Release Agreements''). Clarify which water is

being referred to and recognize the Secretary's responsibilities under

the Colorado River Basin Salinity Control Act.

Response: We agree with these suggestions from several State

agencies, a water authority, and a water district, and have modified

Sec. 414.5(a). This rule clarifies that the referenced agreements are

Storage and Interstate Release Agreements. In addition, the last

sentence of Sec. 414.5(a) was modified to qualify that the United

States has no obligation to construct or furnish water treatment

facilities to maintain or improve water quality except as otherwise

provided in relevant Federal law. Implementation of this rule will not

modify the Secretary's responsibilities under the Colorado River Basin

Salinity Control Act of June 24, 1974 (88 Stat. 266).

Comments Concerning Sec. 414.6--Environmental Compliance and Funding of

Federal Costs

Comment: Modify Sec. 414.6(b) to clarify that the interstate

agreements referred to are Interstate Storage Agreements (now termed

``Storage and Interstate Release Agreements'') and that the costs

incurred by the United States in evaluating, processing, and approving

an Interstate Storage Agreement (now termed a Storage and Interstate

Release Agreement'') will be funded by the parties to that agreement.

Response: We agree with these suggestions from several State

agencies, a water authority, and a water district, and have modified

Sec. 414.6(b) to require that the authorized entities that are parties

to a Storage and Interstate Release Agreement must fund the United

States costs of considering, participating in, and administering that

agreement.

Public Comments on DPEA and Responses

The following is a discussion of the comments received on the DPEA

and our responses. This section includes comments on the scope of the

DPEA, Secretarial discretion, adequacy of the environmental assessment,

potential effects on plants and wildlife, water available for instream

flows and habitat enhancement, concerns over deliveries to Mexico,

efficiency improvements, storage alternatives, consultations, sunset

clause, economic impacts of the rule, effects on ground water storage,

and general comments.

Scope of the DPEA

Comment: The description of proposed interstate transactions in the

draft programmatic environmental assessment is overly broad and the

draft environmental assessment is therefore unnecessarily broad in its

scope.

Response: We recognize, from comments on the proposed rule and

DPEA, that prospective transactions are not described the way

prospective authorized entities will intend them to work. Colorado

River water stored offstream under a Storage and Interstate Release

Agreement will be available for use in the Storing State. When a

consuming entity requests water stored under a Storage and Interstate

Release Agreement, it will receive ICUA, not storage credits. The

storing entity will take actions to reduce its State's consumptive use

of Colorado River water, thereby developing ICUA. When the Secretary is

satisfied that ICUA has been or will be developed, an equivalent

quantity of ICUA will be released by the Secretary for use by the

consuming entity. Based on a reformulation of the prospective

transactions that may take place under the rule, we believe that the

final programmatic environmental assessment (FPEA) is appropriate.

Secretarial Discretion

Comment: Several respondents commented that the rule should not be

finalized or surplus water stored offstream before the Department

clarifies exactly what discretion the Secretary has in providing water

for habitat enhancement and how the proposed rule would affect that

discretion.

Response: In the Lower Colorado River area (LCR), the Decree

apportions surplus among the Lower Division States as follows: 50

percent to California, 46 percent to Arizona, and 4 percent to Nevada.

Entities with surplus contracts are currently using surplus and may

store it offstream for intrastate use without the proposed Rule. We

recognize that the Secretary's management of the LCR to accommodate

endangered and sensitive species and their critical habitat is being

reviewed as part of the MSCP. FWS developed a Reasonable and Prudent

Alternative (RPA) in the Biological and Conference Opinion (BCO) for

the current and projected routine operations and maintenance of the

LCR. The RPA contains a number of provisions, one of which, 13(a),

addresses the type and extent of the Secretary's discretionary action

flexibility for all operations and maintenance activities on the

Colorado River. Reclamation has provided a summary of its discretion to

FWS. Reclamation complied with RPA provision 13(b) by providing a

report to FWS on December 30, 1998, that identifies opportunities to

increase the Secretary's discretion in Colorado River operations in

order to provide water for fish and wildlife purposes. We believe

[[Page 59000]]

that this rule can be implemented without compromising the MSCP

process.

Adequacy of the Environmental Assessment

Comment: The level of environmental compliance proposed by

Reclamation is inadequate and Reclamation should complete a

programmatic EIS on the proposed rule and the entire operation of the

Colorado River.

Response: Please refer to the previous discussion of adequacy of

the environmental assessment under the Environmental Concerns section

of the Public Comments on Proposed Rule and Responses on General

Issues.

Potential Effects on Plants and Wildlife

Comment: Compliance with the ESA for the proposed rule was not

accomplished through the biological opinions for Central Arizona

Project (CAP) or Lower Colorado River Operations and Maintenance

Activity and Reclamation cannot defer them until a later date.

Response: We do not agree with this view expressed by several

environmental groups. Reclamation has prepared a biological assessment

(BA) for the proposed rule and entered into informal consultation with

FWS. Please refer to the response to the following comment for more

details about those consultations. Reclamation has incorporated by

reference into its BA for the proposed rule the 1996 Biological

Assessment for Description and Assessment of Operations, Maintenance,

and Sensitive Species of the Lower Colorado River (LCRBA). The LCRBA

analyzed the potential effects to listed species and designated

critical habitat from current and projected routine LCR operations and

maintenance where Reclamation has discretionary involvement or control.

Reclamation also incorporated by reference FWS's 1997 BCO based on the

LCRBA. These documents provide the baseline for current and projected

routine LCR operations. More information on the BA prepared for this

rule is contained in the next few responses.

The BCO and prior consultations with FWS for physical facilities

and water delivery contracts with the Central Arizona Water

Conservation District and Southern Nevada Water Authority cover the

effects of both mainstream and offstream areas that would be involved

in the scope of proposed actions under the rule.

Comment: The offstream storage and retrieval of water under the

proposed rule is likely to have adverse direct, indirect, and

cumulative effects on wildlife and critical habitat, particularly for

threatened and endangered species.

Response: We do not agree with the view by several environmental

groups that proposed actions under the proposed rule will adversely

affect threatened and endangered species and critical habitat.

Reclamation has met with FWS and engaged in informal consultations

under the ESA. In the course of those consultations, Reclamation

prepared a BA that analyzed the potential effects of operations under

the proposed rule on listed species and designated habitat in the LCR

action area. This analysis was based upon the most likely storage and

retrieval scenarios of water from Lakes Mead or Havasu and associated

river reaches to obtain ICUA under the proposed rule. At the request of

FWS, several worst case scenarios were formulated by Reclamation for

purposes of comparison with Colorado River operations that are most

likely to occur under the proposed rule. These worst case scenarios

were given detailed analysis and discussed with FWS but were later

eliminated because they are not realistic and will not be allowed under

proposed Storage and Interstate Release Agreements.

The BA analyzed several scenarios, one of which was a proposed

action in which 1.2 maf would be stored in Arizona under a Storage and

Interstate Release Agreement to allow an authorized entity in Nevada to

meet its future water needs. Maximum conveyance capacity expected to be

made available on the CAP to store water for interstate water

transactions is 200 kaf/year. An authorized entity in Nevada will make

future diversions of water from Lake Mead, in addition to Nevada's

normal basic and surplus apportionments, to use ICUA released by the

Secretary. This additional diversion of ICUA will be limited, under

Arizona law, to a maximum of 100 kaf in any year. The BA analyzed the

effects of this and other scenarios for storage of Colorado River water

and future release of ICUA on listed species and their designated

habitat. Effects to each species were determined for the most likely

and low probability case scenarios. Habitat requirements for breeding,

nesting, and foraging of some species are not dependent on the LCR.

Fluctuations in water surface elevations associated with most likely

and low probability storage and retrieval scenarios on reservoirs and

riverine reaches on the LCR are very small and are not likely to

adversely affect bonytail chub, razorback sucker, Yuma clapper rail, or

southwestern willow flycatcher. Based upon the available information

regarding the critical habitats for the razorback sucker and bonytail

chub, storage and release of ICUA under this rule will not adversely

modify critical habitat for these fish species. Other listed and

sensitive species will not be affected by implementation of the rule.

Reclamation did not consult with FWS on species in Mexico because the

United States has no authority or discretion regarding Mexico's use of

its treaty water or flood control releases.

Reclamation has notified the National Marine Fisheries Service that

a section 7 consultation for Mexican species under its administration

is not required.

Water Available for Instream Flows and Habitat Enhancement

Comment: Concern was expressed that Colorado River stream flows

downstream from Lake Mead would first increase when water is put into

storage in Arizona and then decrease in the future as more water is

diverted from Lake Mead when Nevada recovers stored water.

Response: No significant changes are expected in stream flows

downstream from Lake Mead as a result of implementation of a Storage

and Interstate Release Agreement between Arizona and Nevada under the

rule. The Biological Assessment for this rule evaluated the effects of

storage of 100 and 200 kaf/year of Colorado River water in Arizona and

subsequent diversion in a later year of up to 100 kaf by Nevada from

Lake Mead. Very small changes in water surface elevations would occur

in the riverine and reservoir areas below Lake Mead. The largest

increase or decrease in average monthly water surface elevation when

storing or using water was 0.12 feet. These changes fall within the

range of increases and decreases in water surface elevations below Lake

Mead and Hoover Dam under current river operations.

Concerns over Deliveries to Mexico

Comment: The DPEA states that a minor reduction will occur in the

quantity of surplus water available for delivery to Mexico over the

long term without explaining what a minor reduction is or what studies

have been done to quantify this.

Response: Please refer to the previous discussion of adequacy of

the environmental assessment under the Environmental Concerns section

of the Public Comments on Proposed Rule and Responses on General

Issues.

Comment: Offstream storage of surplus water will decrease the

likelihood that water from flood control releases will reach the Gulf

of

[[Page 59001]]

California, thereby reducing the quantity of water that otherwise would

be available for environmental restoration in the delta.

Response: Flood control releases are projected to average 788 kaf/

year during the period 1999-2015. Offstream storage could decrease

flood control releases reaching Mexico by an average of 23 kaf/year

during this time. The probability of occurrence of flood control

releases could decrease by 0.83 percent. These decreases fall within

the range of flood control projections previously consulted on in the

1996 Biological Assessment of Operations, Maintenance, and Sensitive

Species of the Lower Colorado River.

Please refer to the previous discussion of adequacy of the

environmental assessment under the Environmental Concerns section of

the Public Comments on Proposed Rule and Responses to General Issues.

Efficiency Improvements

Comment: Efficiency improvements in river management and the

storage of Colorado River water in underground aquifers mean less water

is available for environmental purposes, such as the riparian and

aquatic ecosystems of the river, including the river and delta region

in Mexico.

Response: Please refer to the previous discussion of efficiency

improvements under Public Comments on Proposed Rule and Responses on

General Issues.

Storage Alternatives

Comment: It is not clear what storage options are available under

the rule, or how the rule would apply if there are changes in Arizona's

laws or if California or Nevada enact conflicting laws.

Response: We have modified this rule in response to comments from

several State agencies, a water district, and a water authority. This

rule now provides in Sec. 414.3(a)(2) and Sec. 414.6(a)(3),

respectively, for the storage of basic or surplus apportionment of the

Storing State, not otherwise put to use by entitlement holders within

the Storing State, or storage of the unused basic or surplus

apportionment of the Consuming State. If unused apportionment from the

Consuming State is to be stored under a Storage and Interstate Release

Agreement, the rule provides that the Secretary will make that water

available to the storing entity in accordance with the terms of a

Storage and Interstate Release Agreement and will not make that water

available to other entitlement holders. The rule has been drafted to

apply uniformly to all three Lower Division States and the Department

will not speculate about potential changes in Arizona's laws or whether

California or Nevada may enact conflicting laws.

Comment: Banking in Lake Mead is illegal and it should not be

listed as an alternative to the rule.

Response: We do not agree with the comment from a State agency that

banking in Lake Mead is illegal. Moreover, under NEPA, Reclamation is

charged with the responsibility to analyze reasonable alternatives, and

the Department believes that it has appropriately complied with NEPA in

this regard.

Comment: The DPEA misstates Arizona law with regard to the ability

to create ICUA during a shortage year.

Response: We agree with the comment from a State agency that the

statement in the DPEA that ``Interstate recovery of storage credits in

Arizona for California and Nevada will not be allowed in a shortage

year'' is not accurate. The FPEA has been revised to clarify that AWBA

has discretion to decide whether it is in Arizona's best interests to

enter into a Storage and Interstate Release Agreement that would

require decreased diversions of mainstream water by Arizona during

years when the Secretary has declared a shortage on the Colorado River.

Consultations

Comment: The requirement for consultation under the Fish and

Wildlife Coordination Act is broader than described and consultation is

required with the State wildlife agencies on an equal footing with FWS.

Response: We do not agree with this comment from a State agency

that Reclamation is required to consult with State wildlife agencies.

Reclamation's responsibility under the Fish and Wildlife Coordination

Act is to coordinate with FWS who in turn is expected to interface and

represent fish and wildlife concerns based on, among other things,

coordination with State game and fish agencies. In addition, the Fish

and Wildlife Coordination Act requirements will be met through both ESA

and NEPA consultations. The Fish and Wildlife Coordination Act requires

Reclamation to consider fish and wildlife resource needs in operation

and management of water projects.

Sunset Clause

Comment: The need for a permanent rule was questioned and it was

suggested that the rule should have a termination date, such as the end

of the time that storage is anticipated. It was suggested that a sunset

date will allow the Department an opportunity to do a programmatic

reevaluation of how the rule is being used.

Response: We do not agree with the suggestion from a Federal agency

that there should be a sunset date. Under this rule, a consuming entity

will be able to enter into Storage and Interstate Release Agreements

and pay for storage of water that the Storing State will use in the

future when the consuming entity calls for ICUA. However, there is no

way to accurately predict the future and unanticipated changes in the

rate of population growth or the occurrence of droughts or surplus

conditions will affect how much water can be stored or when ICUA will

be needed. The parties to a Storage and Interstate Release Agreement

would not agree to subject any water already in storage to new terms

and conditions under new rules. A consuming entity that invests

significant sums of money into funding water storage in a Storing State

is not likely to agree to subject itself to limited term storage or

revised terms and conditions for the right to receive ICUA under an

already signed Storage and Interstate Release Agreement. The storage

and retrieval period between Arizona and Nevada is projected to run

from years 1999 to 2030 and may run longer if both California and

Nevada enter into Storage and Interstate Release Agreements with

Arizona. Under Arizona law no more than a total of 100 kaf of water

stored in Arizona may be retrieved by California and Nevada in any

given year. If Nevada is limited to retrieving a maximum of 50 kaf of

ICUA from Arizona because California is also retrieving ICUA, the water

stored under a Storage and Interstate Release Agreement could be

retrieved at this rate beyond the year 2030.

Economic Impacts of the Rule

Comment: Some respondents commented that the proposed rule may

impact the southern California water rates if less water that is

apportioned to but unused by Arizona and Nevada is made available to

California.

Response: Please refer to the previous discussion of potential

economic impacts of the rule on southern California water rates that is

included in the discussion of economic impacts of this rule under

Public Comments on Proposed Rule and Responses on General Issues.

Comment: The DPEA provides little information regarding potential

environmental justice concerns regarding minority and low-income

communities, such as Indian tribes, communities along the Mexican

border, and communities near the Gulf of California.

[[Page 59002]]

Response: We have reevaluated the section of the DPEA on

environmental justice and has included additional analysis. Based on

this additional analysis, we do not find that this rule will have an

effect on minority or low-income communities. As discussed in previous

responses, this rule is not intended as a mechanism to compensate

tribes.

Because Mexico is a sovereign nation, we have no control over how

Colorado River water is used once it reaches the international border.

Thus while we have determined that there may be minimal effects of this

rule on flood control deliveries to the international border, we cannot

determine the potential effects that any potential reduction in the

deliveries of flood control water may have within the Republic of

Mexico.

Effects on Ground Water Storage

Comment: Some respondents, including Indian tribes, commented that

the rule would result in a net loss in ground water over time to

``indirect storage'' and that this is a significant indirect effect of

the rule but the DPEA shows no analysis of this effect.

Response: We do not agree that actions under this rule will result

in a loss of ground water to indirect storage. The method by which

Colorado River water is stored by indirect storage allows water to

remain in the ground in lieu of being pumped. When Arizona is the

Storing State, the development of ICUA is limited to only 95 percent of

the water previously stored under a Storage and Interstate Release

Agreement. Therefore, the ground water will gain by 5 percent of the

water that would have been pumped anyway if it were left in the ground

through in lieu storage actions. Further, although Arizona law

currently does not allow the development of ICUA by any means other

than pumping water that was stored under a Storage and Interstate

Release Agreement, this rule allows additional flexibility. If Arizona

changes its laws or policy in the future to allow other means of

developing ICUA, it is possible that the alternative means could help

preserve Arizona's ground water. Finally, as stated previously, this

rule allows Colorado River entitlement holders in the Storing State the

option to use the water previously stored under a Storage and

Interstate Release Agreement or other means consistent with Storing

State law to develop ICUA.

Comment: Reclamation should clarify how the rule fits within the

regulatory framework for ground water protection in each State, as well

as the federal role in ground water protection. The preamble to the

proposed rule contains a statement that, ``Water quality will be

monitored by the Environmental Protection Agency . . .'' It is not

clear to what extent Reclamation expects the Environmental Protection

Agency (EPA) to be involved in offstream storage authorized under the

rule.

Response: We do not anticipate a need for EPA to evaluate data

collected through any offstream storage of Colorado River water. The

purpose of the statement was to declare that the Department, and more

specifically Reclamation, does not have the responsibility to regulate

ground water quality.

General Comments

Comment: There were a number of editorial comments on the DPEA that

suggested clarification or additional explanation on various points.

Response: We have reviewed and considered the comments and has

adopted many of the suggestions into the text of the FPEA. In addition,

the previously mentioned informal consultations between Reclamation and

FWS resulted in Reclamation's incorporation of numerous suggestions

made by FWS into the BA and FPEA.

Public Comments on Definition of Authorized Entity and Several

Other Technical Matters and Responses

As a result of receiving differing comments on the definition of

authorized entity and several other technical matters, the Department

reopened the comment period on September 21, 1998 (63 FR 50183) for a

30-day period ending October 21, 1998. We asked interested parties to

provide comments on three specific questions:

Question 1: Should the definition of ``authorized entity'' be

revised to clarify that an authorized entity, including a water bank,

must hold an entitlement to Colorado River water in order to ensure

consistency with the Law of the River, including specifically Section 5

of the BCPA as interpreted by the Decree?

Question 2: Should an approved Interstate Storage Agreement (now

termed a Storage and Interstate Release Agreement) and a contract under

Section 5 of the BCPA be combined into one document, thus making the

parties entitlement holders upon execution of the agreement?

Question 3: If not combined, should the Interstate Storage

Agreement (now termed a Storage and Interstate Release Agreement) and

any separate Section 5 contract (or amendments to an existing contract)

be processed and approved simultaneously to eliminate duplication of

any administrative and compliance procedures?

The Department received 10 letters from 11 respondents during the

reopened comment period. The respondents included three State agencies,

three water districts, one water authority, one water users

association, and three environmental organizations. We reviewed and

analyzed all pertinent comments and revised the rule based on these

comments. Four respondents, including one water users association and

three environmental organizations, did not address the issues on which

comments were solicited during the reopened comment period. One water

users association resubmitted its comments from the original comment

period. Three environmental organizations reiterated the same

environmental concerns addressed in their respective responses in the

original comment period. Two respondents jointly submitted a report

that addresses potential effects of water flows from the United States

on the riparian and marine ecosystems of the Colorado River delta in

Mexico.

The remaining seven respondents provided comments on issues

pertinent to the reopened comment period, although one State agency and

one water district also resubmitted their respective comments from the

original comment period.

The following is a discussion of the comments received on the

issues pertinent to the reopened comment period and our responses.

Comments on Question 1

Comment: One State agency and two water districts cite the BCPA and

the Decree to support their view that an authorized entity must have a

contract with the Secretary. Two State agencies, one water district,

and one water authority commented that an authorized entity need not be

an entitlement holder to store water and make it available to a

Consuming State under an Interstate Storage Agreement (now termed a

``Storage and Interstate Release Agreement''). The latter group

recognizes that the BCPA and the Decree require all diversions of

Colorado River water from the mainstream to be based on an entitlement.

However, these respondents believe there is no statutory requirement

for the authorized entity to have a direct contract with the Secretary

in order to fulfill its responsibilities to store its own State's

unused apportionment. Under their reasoning, the authorized entity can

arrange for storage and ensure the availability of unused apportionment

in the future

[[Page 59003]]

through existing contractual arrangements with other parties that have

entitlements through contracts with the Secretary.

Response: With the exception of Federal and tribal rights

identified in Article II(D) of the Decree, all diversions of water from

the Colorado River for use within the Lower Division States require a

contract with the Secretary. This is specified in Section 5 of the BCPA

and confirmed by the Decree in Arizona v. California. Under this rule

diversions of Colorado River water will occur in two circumstances. The

first is when water is taken from the river and stored off-stream by

the storing entity and the second is when ICUA has been developed and

that water is released by the Secretary for use by the consuming

entity.

For authorized entities that do not hold a Federal or tribal

entitlement recognized in Article II(D) of the Decree, the rule allows

for the storage of Colorado River water either through a direct

contract with the Secretary or through a valid subcontract with an

entitlement holder. For the release or diversion of ICUA to the

consuming entity, the Storage and Interstate Release Agreement, to

which the Secretary will be a party, satisfies the Section 5

requirement.

Comments on Question 2

Comment: One State agency and one water district believe that

sufficient statutory and contractual authorities exist to allow the

authorized entity to take water for banking purposes that otherwise

would be unused in that State. These parties believe the authorized

entity does not need to hold its own entitlement because sufficient

legal authority already exists under applicable laws and contracts. The

State agency states that not all end users of Colorado River water are

required to have entitlements or contracts with the Secretary. The

State agency further contends that the Colorado River Basin Project Act

[43 U.S.C. 1524(b)] makes a direct contract between the Secretary and

end-users of Colorado River water in Arizona discretionary.

Response: The Department recognizes in new Sec. 414.3(e) that

storage of Article II(D) water by Federal or tribal entitlement holders

or existing contracts may allow for the delivery of water under this

rule. These include direct contracts between authorized entities and

the Secretary. These also include subcontracts between authorized

entities and an entitlement holder that has been authorized by the

Secretary to enter into subcontracts for the delivery of Colorado River

water. Authorized entities that are Federal or tribal entitlement

holders identified in Article II(D) of the Decree are not subject to

the Section 5 contract requirement in the Decree. Section 414.3(e) also

provides that the Storage and Interstate Release Agreement, to which

the Secretary is a party, can be a water delivery contract. We agree

that when existing contracts or valid subcontracts provide for delivery

of Colorado River water under this rule, there is no need to combine

these contracts with the Storage and Interstate Release Agreement.

Comment: Another State agency and one water authority, in a joint

response, believe an additional contract, beyond the contract necessary

to fulfill the requirements of Section 5 of the BCPA, is necessary with

the Secretary for the release of water based on the development of ICUA

by a storing entity. However, those parties do not see a need for new

and additional Section 5 contracts beyond those that now exist.

Response: The Department modified the rule in Sec. 414.3(a) to

provide that the Secretary will be a party to Storage and Interstate

Release Agreements. Sections 414.3(a)(12) through 414.3(a)(15) provide,

among other things, that the Secretary will commit in the Storage and

Interstate Release Agreement to release ICUA but only if all necessary

actions are taken under the rule, if all laws and executive orders have

been complied with, and if the Secretary has first determined that ICUA

has been developed or will be developed by a storing entity.

Comment: One State agency and two water districts commented that

whether or not the Interstate Storage Agreement (now termed a ``Storage

and Interstate Release Agreement'') and Section 5 contract are combined

is discretionary and that this should be determined by the particular

situation.

Response: We have modified Sec. 414.3(a) to provide that the

Secretary will be a party to the Storage and Interstate Release

Agreement. The Storage and Interstate Release Agreement can serve as a

water delivery contract within the meaning of Section 5 of the BCPA. We

recognize in Sec. 414.3(e) that, in certain circumstances, existing

contracts or subcontracts can satisfy the requirements of Section 5 for

the delivery of water under a Storage and Interstate Release Agreement.

In such circumstances, the rule does not anticipate the need for the

execution of any further Section 5 contracts in order to implement a

Storage and Interstate Release Agreement. Storage of water by

authorized entities that hold Article II(D) of the Decree entitlements

will not be subject to a Section 5 contract requirement.

Comment: One water district suggested that while there is no legal

requirement for the Interstate Storage Agreement (now termed a

``Storage and Interstate Release Agreement'') and Section 5 contract to

be combined, it was suggested that such an action would have the effect

of making the Secretary a party to the Interstate Storage Agreement

(now termed a ``Storage and Interstate Release Agreement''). It was

asserted that making the Secretary party to the Interstate Storage

Agreement (now termed a ``Storage and Interstate Release Agreement'')

may give the authorized entities a greater sense of security that

future obligations will be performed.

Response: The Department recognizes in new Sec. 414.3(e) that

existing contracts may allow for the delivery of water under this rule.

These include direct contracts between authorized entities and the

Secretary. These also include subcontracts between authorized entities

and an entitlement holder that has been authorized by the Secretary to

enter into subcontracts for the delivery of Colorado River water.

Section 414.3(e) also provides that the Storage and Interstate Release

Agreement, to which the Secretary is a party, can serve as a water

delivery contract. We agree that when existing contracts or valid

subcontracts provide for delivery of Colorado River water under this

rule, there is no need to combine these contracts with the Storage and

Interstate Release Agreement.

Comment: Another water district stated that if one of the parties

to the Interstate Storage Agreement (now termed a ``Storage and

Interstate Release Agreement'') already holds an entitlement for

delivery of Colorado River water under a BCPA Section 5 contract, a new

or amended water delivery contract may not be necessary.

Response: The Department recognizes in the new Sec. 414.3(e) that

in certain circumstances existing contracts may satisfy the Section 5

requirement of the BCPA so that additional Section 5 authority would be

unnecessary to perform activities under a Storage and Interstate

Release Agreement. Section 5 authority is also unnecessary for the

storage of Article II(D) of the Decree water by Federal or tribal

entitlement holders. In circumstances where additional Section 5

authority is unnecessary, the Storage and Interstate Release Agreement

would only cover the specific details of a transaction between the

Secretary and the other parties to the Storage and Interstate Release

Agreement.

[[Page 59004]]

Comments on Question 3

Comment: One State agency and one water district stated that

sufficient statutory and contractual authorities already exist under

applicable laws and contracts to allow the authorized entity to take

water for banking purposes. Therefore there would be no need for a new

or amended contract. Another State agency and one water authority

believe that an additional contract is necessary with the Secretary to

ensure the Secretary's commitment to release water based on the

development of ICUA by a storing entity. That contract could be

executed concurrently with an Interstate Storage Agreement. However, as

noted under comments on Question 2, those parties do not see a need for

new and additional Section 5 contracts beyond those that now exist. One

State agency responded that if there are two separate agreements, they

should be processed, reviewed, and approved simultaneously. The two

water districts commented that any necessary Section 5 contract,

whether or not combined with an Interstate Storage Agreement, should be

processed and approved simultaneously with the Interstate Storage

Agreement.

Response: Question 3 asked whether Storage and Interstate Release

Agreements and Section 5 contracts, if not combined, should be

processed simultaneously. We have modified the rule in Sec. 414.3(a) to

provide that the Secretary will be a party to a Storage and Interstate

Release Agreement. The Department also recognizes in Sec. 414.3(e)

that, in certain circumstances, existing contracts or subcontracts

satisfy the requirements of Section 5 for the delivery of water under a

Storage and Interstate Release Agreement. The rule does not anticipate

the need for the execution of any further Section 5 contracts in order

to implement a Storage and Interstate Release Agreement. Question 3 is

moot in light of these modifications to the rule. Comments by the

parties in response to Question 3 primarily address issues raised by

Questions 1 and 2 and are responded to above.

V. Procedural Matters

Environmental Compliance

Paperwork Reduction Act

Regulatory Flexibility Act

Small Business Regulatory Enforcement Fairness Act (SBREFA)

Unfunded Mandates Reform Act of 1995

Executive Order 12612, Federalism Assessment

Executive Order 12630, Takings Implications Analysis

Executive Order 12866, Regulatory Planning and Review

Executive Order 12988, Civil Justice Reform

Environmental Compliance

We prepared a DPEA and placed it on file in the Reclamation

Administrative Record. We received comments on the DPEA (discussed

above in III. Responses to Comments), and carefully considered those

comments in preparing the final programmatic environmental assessment

(FPEA). We have accepted many of these comments and incorporated them

into the FPEA, which is on file in the Reclamation Administrative

Record. Based on the FPEA, we have determined that a Finding of No

Significant Impact is warranted.

We have also, under the ESA, consulted with FWS on potential

impacts of this rule on listed species and designated habitat. Based on

the analysis contained in the BA that we prepared for the rule, we have

determined that operations under this rule are not likely to adversely

affect listed species or designated habitat in the action area. FWS has

concurred with this finding. We have also determined that we have no

Section 7 obligations for species within Mexico due to our inability to

control the use of water once it reaches Mexico.

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

critical habitat, and is analyzed by an appropriate environmental

document. Consultation and coordination between Reclamation, FWS, other

agencies, and interested parties will be completed on a case-by-case

basis.

Paperwork Reduction Act

This rule is geographically limited to the States of Arizona,

California, and Nevada. The collection of information contained in the

rule covers storing entities that would store Colorado River water off

the mainstream of the Colorado River. The information we would collect

would be compiled by these storing entities in the course of their

normal business, and the annual reports to the Secretary will not

impose any significant time or cost burden. We will submit the

information collection requirements in this rule to the Office of

Management and Budget for approval as required by the Paperwork

Reduction Act, 44 U.S.C. 3501 et seq. We will not require collection of

this information until the Office of Management and Budget has given

its approval.

Regulatory Flexibility Act

The Department of the Interior certifies that this document will

not have a significant economic effect on a substantial number of small

entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

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

costs associated with the development and release of intentionally

created unused apportionment will be borne by the parties who

voluntarily enter into offstream storage and release agreements. A

benefit-cost analysis was completed and concludes that this 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.

From a financial perspective, since the rule may provide an opportunity

for authorized entities in the Lower Division States to secure

additional supplies of Colorado River water, Colorado River water users

may experience a cost savings. The rule will not affect any Colorado

River entitlement holder's right to use its full water entitlement.

Further, in times of shortage on the Colorado River, numerous small

water users with senior water rights, which are determined by an

earlier priority date, will retain their seniority and will be served

before less senior users regardless of size.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a major rule under 5 U.S.C. 804(2), the SBREFA.

This rule:

(1) Does not have an annual effect on the economy of $100 million

or more. The Department prepared a benefit-cost analysis, which

estimated that this rule would cause net economic benefits on a State

and regional level using different water supply models and discount

rates. 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 per cent and $9.5 to $47.7 million at

8.27 per cent. 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 per cent and $350,789 to

$3.1 million at 8.27 per cent. Under the scenario characterized by 10

surplus

[[Page 59005]]

years, demand for banked water is relatively low because water users in

the Lower Division States can meet most of their water needs with

diversions from the mainstream within the basic and surplus

apportionments for use within those States.

(2) Will not cause a major increase in costs or prices for

consumers, individual industries, Federal, State, or local government

agencies, or geographic regions.

This rule facilitates the creation of an additional alternative for

water agencies to secure water supplies. However, entering into Storage

and Interstate Release Agreements for the offstream storage of Colorado

River water and the release of ICUA provided for in this rule is

voluntary. Should the costs of the procedures to facilitate these

transactions, provided for in the rule, be greater than the cost of

other alternative water supplies, the States would probably select the

cheaper alternatives.

This rule may create an opportunity for the total cost of

alternative water supplies to decrease, thereby reducing the cost

burden on all water users in southern California.

Water users in southern Nevada are just now approaching use of the

entire 300 kaf basic annual apportionment of Colorado River for use in

Nevada. Like California, Nevada will also need alternative water

supplies to satisfy the increasing demands of economic development and

population growth. The cost of securing alternative supplies will be

greater than the cost of obtaining Colorado River water under the

State's basic or surplus apportionment. This rule may provide an

opportunity for Colorado River water users in Nevada to experience a

cost savings in securing additional supplies of Colorado River water.

(3) Does not have significant adverse effects on competition,

employment, investment, productivity, innovation, or the ability of

U.S.-based enterprises to compete with foreign-based enterprises.

This rule is facilitating voluntary water transactions that may

confer benefits on a national basis in many economic sectors.

(i) Voluntary water transactions can promote economic efficiency

gains. These gains accrue to the parties in a given transaction and to

the wider regional and national economy. The gains result due to

greater flexibility in how and where water is used.

(ii) Voluntary water transactions offer a cost effective way to

increase water supplies without constructing new mainstream facilities

such as dams.

(iii) Voluntary water transactions may stimulate investment and

development in conservation technology that is currently economically

infeasible given the returns to water in its present use.

Unfunded Mandates Reform Act of 1995

This rule does not impose an unfunded mandate on State, local, or

tribal governments or the private sector of more than $100 million per

year. The range of benefits and costs associated with the rule are

constrained because the amount of water that can be released under an

offstream storage agreement in any one year is constrained by State law

and immediate demand. This rule does not have a significant or unique

effect on State, local, or tribal governments or the private sector.

The rule provides a framework under which authorized entities could

voluntarily store Colorado River water offstream for future interstate

use. The publication of this rule does not authorize specific

activities, and will not impose costs on any State, local, or tribal

government, or the private sector. A statement (benefit-cost analysis)

containing the information required by the Unfunded Mandates Reform Act

(2 U.S.C. 1531 et seq.) has been prepared and is summarized below in

the section relating to Executive Order 12866.

We received comments on the benefit-cost analysis that were

editorial in nature or asked for clarification or revision of

information in the analysis. We accepted approximately 85 percent of

the comments and revised the text or footnotes as necessary to include

those changes where requested.

The benefit-cost analysis concluded that this rule does not impose

significant or unique impact upon small governments (including Indian

communities), small entities such as water districts, or individual

entitlement holders. The rule will not affect the priority of water use

on the Colorado River. Therefore benefits received by water users,

regardless of size, associated with the right to divert Colorado River

water will remain. Costs of storage and release of unused apportionment

water will be borne by authorized entities in the Storing State and the

Consuming State who voluntarily enter into storage and release

agreements. All Colorado River water users may experience a decrease in

water costs since the rule will enable authorized entities in the Lower

Division States to secure additional water supplies. 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

In accordance with Executive Order 12612, this rule does not have

sufficient federalism implications to warrant the preparation of a

Federalism Assessment. A Federalism Assessment is not required. This

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.

Executive Order 12630, Takings Implications Analysis

In accordance with Executive Order 12630, this rule does not have

significant takings implications. A takings implication assessment is

not required. This 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 and would

not result in physical invasion or occupancy of private property or

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

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

property and does not affect a Colorado River water entitlement

holder's right to use its full water entitlement. Under this 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. When the Storing

State must reduce its diversions to develop ICUA, an entity that

reduces its consumptive use of Colorado River water to develop that

unused apportionment will do so voluntarily under an appropriate

agreement. Therefore, the Department of the Interior has determined

that this 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 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). The Department's benefit-cost

analysis determines that this 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.

[[Page 59006]]

California and Nevada are looking for alternative water supplies to

satisfy the increasing demands of economic development and population

growth. This rule may provide an opportunity for Colorado River water

users in Nevada to experience a marginal cost savings in securing

alternative supplies. Offstream storage of Colorado River water and

making available ICUA are voluntary actions. Should the costs of the

procedures in this 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.

The benefit-cost analysis estimated net economic benefits of this

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 per cent (the average rate on

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

in California and Nevada) and 8.27 per cent (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 per cent and $9.5 to $47.7 million at

8.27 per cent. 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 per cent and $350,789 to

$3.1 million at 8.27 per cent. Under the scenario characterized by 10

surplus years, demand for banked water is relatively low because water

users in the Lower Division States can meet most of their water needs

with diversions from the mainstream within the basic and surplus

apportionments for use within those States.

We have placed the full analysis on file in the Reclamation

Administrative Record at Bureau of Reclamation, Administrative Record,

Lower Colorado Regional Office, P.O. Box 61470, Boulder City, NV 89006-

1470, Attention: BC00-4451.

Executive Order 12988, Civil Justice Reform

In accordance with Executive Order 12988, the Office of the

Solicitor has determined that this rule does not unduly burden the

judicial system and meets the requirements of sections 3(a) and 3(b)(2)

of the Order.

List of Subjects in 43 CFR Part 414

Environmental compliance, Public lands, Water bank program, Water

resources, Water storage, Water supply, and Water quality.

Dated: October 26, 1999.

Patricia J. Beneke,

Assistant Secretary--Water and Science.

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

adds a new part 414 to title 43 of the Code of Federal Regulations as

follows:

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

AND RELEASE OF INTENTIONALLY CREATED UNUSED APPORTIONMENT IN THE

LOWER DIVISION STATES

Sec.

Subpart A--Purposes and Definitions

414.1 Purpose.

414.2 Definitions of terms used in this part.

Subpart B--Storage and Interstate Release Agreements

414.3 Storage and Interstate Release Agreements.

414.4 Reporting Requirements and accounting under storage and

interstate release agreements.

Subpart C--Water Quality and Environmental compliance

414.5 Water Quality.

414.6 Environmental Compliance and funding of Federal costs.

Authority: 5 U.S.C. 553; 43 U.S.C. 391, 485 and 617; 373 U.S.

546; 376 U.S. 340.

Subpart A--Purposes and Definitions

Sec. 414.1 Purpose.

(a) What this part does. This part establishes a procedural

framework for the Secretary of the Interior (Secretary) to follow in

considering, participating in, and administering Storage and Interstate

Release Agreements in the Lower Division States (Arizona, California,

and Nevada) that would:

(1) Permit State-authorized entities to store Colorado River water

offstream;

(2) Permit State-authorized entities to develop intentionally

created unused apportionment (ICUA);

(3) Permit State-authorized entities to make ICUA available to the

Secretary for release for use in another Lower Division State. This

release may only take place in accordance with the Secretary's

obligations under Federal law and may occur in either the year of

storage or in years subsequent to storage; and

(4) Allow only voluntary interstate water transactions. These water

transactions can help to satisfy regional water demands by increasing

the efficiency, flexibility, and certainty in Colorado River management

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, (373 U.S. 546) (1963), as supplemented and

amended.

(b) What this part does not do. This part does not:

(1) Affect any Colorado River water entitlement holder's right to

use its full water entitlement;

(2) Address or preclude independent actions by the Secretary

regarding Tribal storage and water transfer activities;

(3) Change or expand existing authorities under the body of law

known as the ``Law of the River';

(4) Change the apportionments made for use within individual

States;

(5) Address intrastate storage or intrastate distribution of water;

(6) Preclude a Storing State from storing some of its unused

apportionment in another Lower Division State if consistent with

applicable State law; or

(7) Authorize any specific activities; the rule provides a

framework only.

Sec. 414.2 Definitions of terms used in this part.

Authorized entity means:

(1) An entity in a Storing State which is expressly authorized

pursuant to the laws of that State to enter into Storage and Interstate

Release Agreements and develop ICUA (``storing entity''); or

(2) An entity in a Consuming State which has authority under the

laws of that State to enter into Storage and Interstate Release

Agreements and acquire the right to use ICUA (``consuming entity'').

Basic apportionment means the Colorado River water apportioned for

use within 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 United States Supreme Court, in Arizona v.

California, confirmed that the annual basic apportionment for the Lower

Division States is 2.8 maf of consumptive use in the State of Arizona,

4.4 maf of consumptive use in the State of California, and 0.3 maf of

consumptive use in the State of Nevada.

BCPA means the Boulder Canyon Project Act, authorized by the Act of

Congress of December 21, 1928 (45 Stat. 1057).

[[Page 59007]]

Colorado River Basin means all of the drainage area of the Colorado

River System and all other territory within the United States to which

the waters of the Colorado River System shall be beneficially applied.

Colorado River System means that portion of the Colorado River and

its tributaries within the United States.

Colorado River water means water in or withdrawn from the

mainstream.

Consuming entity means an authorized entity in a Consuming State.

Consuming State means a Lower Division State where ICUA will be

used.

Consumptive use means diversions from the Colorado River less any

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

United States or in satisfaction of the Mexican treaty obligation.

(1) Consumptive use from the mainstream within the Lower Division

States includes water drawn from the mainstream by underground pumping.

(2) 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.

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

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

amended.

Entitlement means an authorization to beneficially use Colorado

River water pursuant to:

(1) The Decree;

(2) A water delivery contract with the United States through the

Secretary; or

(3) A reservation of water from the Secretary.

Intentionally created unused apportionment or ICUA means unused

apportionment that is developed:

(1) Consistent with the laws of the Storing State;

(2) Solely as a result of, and would not exist except for,

implementing a Storage and Interstate Release Agreement.

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 ground water aquifer. Offstream storage includes

indirect recharge when Colorado River water is exchanged for ground

water that otherwise would have been pumped and consumed.

Secretary means the Secretary of the Interior or an authorized

representative.

Storage and Interstate Release Agreement means an agreement,

consistent with this part, between the Secretary and authorized

entities in two or more Lower Division States that addresses the

details of:

(1) Offstream storage of Colorado River water by a storing entity

for future use within the Storing State;

(2) Subsequent development of ICUA by the storing entity,

consistent with the laws of the Storing State;

(3) A request by the storing entity to the Secretary to release

ICUA to the consuming entity;

(4) Release of ICUA by the Secretary to the consuming entity; and

(5) The inclusion of other entities that are determined by the

Secretary and the storing entity and the consuming entity to be

appropriate to the performance and enforcement of the agreement.

Storing entity means an authorized entity in a Storing State.

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

off the mainstream in accordance with a Storage and Interstate Release

Agreement for future use in that State.

Surplus apportionment means the Colorado River water apportioned

for use within 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

otherwise put to beneficial consumptive use during that year within

that State.

Upper Division States means the States of Colorado, New Mexico,

Utah, and Wyoming.

Water delivery contract means a contract between the Secretary and

an entity for the delivery of Colorado River water in accordance with

section 5 of the BCPA.

Subpart B--Storage and Interstate Release Agreements

Sec. 414.3 Storage and Interstate Release Agreements.

(a) Basic requirements for Storage and Interstate Release

Agreements. Two or more authorized entities may enter into Storage and

Interstate Release Agreements with the Secretary in accordance with

paragraph (c) of this section. Each agreement must meet all of the

requirements of this section.

(1) The agreement must specify the quantity of Colorado River water

to be stored, the Lower Division State in which it is to be stored, the

entity(ies) that will store the water, and the facility(ies) in which

it will be stored.

(2) The agreement must specify whether the water to be stored will

be within the unused basic apportionment or unused surplus

apportionment of the Storing State. For water from the Storing State's

apportionment to qualify as unused apportionment available for storage

under this part, the water must first be offered to all entitlement

holders within the Storing State for purposes other than interstate

transactions under proposed Storage and Interstate Release Agreements.

(3) The agreement must specify whether the water to be stored will

be within the unused basic apportionment or unused surplus

apportionment of the Consuming State. If the water to be stored will be

unused apportionment of the Consuming State, the agreement must

acknowledge that any unused apportionment of the Consuming State may be

made available from the Consuming State by the Secretary to the Storing

State only in accordance with Article II(B)(6) of the Decree. If unused

apportionment from the Consuming State is to be stored under a Storage

and Interstate Release Agreement, the Secretary will make the unused

apportionment of the Consuming State available to the storing entity in

accordance with the terms of a Storage and Inte

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