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Public Law 102-575

Section 3404. Limitation on Contracting and Contract 

Reform

(a) New Contracts.--Except as provided in subsection (b) of this section, the Secretary shall not 

enter into any new short-term, temporary, or long-term contracts or agreements for water supply 

from the Central Valley Project for any purpose other than fish and wildlife before:

(1) The provisions of subsections 3406(b) -(d) of this title are met;

(2) The California State Water Resources Control Board concludes the review ordered by the 

California Court of Appeals in U.S. v. State Water Resources Control Board, 182 Cal. App. 3rd 

82 (1986) and determines the means of implementing its decision, including the obligations of 

the Central Valley Project, if any, and the Administrator of the Environmental Protection 

Agency shall have approved such decision pursuant to existing authorities; and,

(3) At least one hundred and twenty days shall have passed after the Secretary provides a 

report to the Committee on Energy and Natural Resources of the Senate and the Committee 

on Interior and Insular Affairs and the Committee on Merchant Marine and Fisheries of the 

House of Representatives explaining the obligations, if any, of the Central Valley Project 

system, including its component facilities and contracts, with regard to achieving its 

responsibilities for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary as finally 

established and approved by relevant State and Federal authorities, and the impact of such 

obligations on Central Valley Project operations, supplies, and commitments.

(b) Exceptions to Limit on New Contracts.--The prohibition on execution of new contracts 

under subsection (a) of this section shall not apply to contracts executed pursuant to section 305 

of Pub. L. 102-250 or section 206 of Pub. L. 101-514 or to one-year contracts for delivery of

surplus flood flows or contracts not to exceed two years in length for delivery of class II water in 

the Friant Unit. Notwithstanding the prohibition in the Energy and Water Development 

Appropriations Act of 1990, the Secretary is authorized, pursuant to section 203 of the Flood 

Control Act of 1962, to enter into a long-term contract in accordance with the Reclamation laws 

with the Tuolumne Regional Water District, California, for the delivery of water from the New 

Melones project to the county's water distribution system and a contract with the Secretary of 

Veteran Affairs to provide for the delivery in perpetuity of water from the project in quantities 

sufficient, but not to exceed 850 acre-feet per year, to meet the needs of the San Joaquin Valley 

National Cemetery, California.
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(c) Renewal of Existing Long-Term Contracts.--Notwithstanding the provisions of the Act of 

July 2, 1956 (70 Stat. 483), the Secretary shall, upon request, renew any existing long-term 

repayment or water service contract for the delivery of water from the Central Valley Project for 

a period of 25 years and may renew such contracts for successive periods of up to 25 years each.

(1) No such renewals shall be authorized until appropriate environmental review, including the 

preparation of the environmental impact statement required in section 3409 of this title, has 

been completed. Contracts which expire prior to the completion of the environmental impact 

statement required by section 3409 may be renewed for an interim period not to exceed three 

years in length, and for successive interim periods of not more than two years in length, until 

the environmental impact statement required by section 3409 has been finally completed, at 

which time such interim renewal contracts shall be eligible for long-term renewal as provided 

above. Such interim renewal contracts shall be modified to comply with existing law, including 

provisions of this title. With respect to all contracts renewed by the Secretary since January 1, 

1988, the Secretary shall incorporate in said contracts a provision requiring payment of the 

charge mandated in subsection 3406(c) and subsection 3407(b) of this title and all other 

modifications needed to comply with existing law, including provisions of this title. This title 

shall be deemed "applicable law" as that term is used in Article 14(c) of contracts renewed by 

the Secretary since January 1, 1988.

(2) Upon renewal of any long-term repayment or water service contract providing for the 

delivery of water from the Central Valley Project, the Secretary shall incorporate all 

requirements imposed by existing law, including provisions of this title, within such renewed 

contracts. The Secretary shall also administer all existing, new, and renewed contracts in 

conformance with the requirements and goals of this title.

(3) In order to encourage early renewal of project water contracts and facilitate timely 

implementation of this title, the Secretary shall impose on existing contractors an additional 

mitigation and restoration payment of one and one-half times the annual mitigation and 

restoration payment calculated under subsection 3407(d) of this title for every year starting 

October 1, 1997 or January 1 of the year following the year in which the environmental impact 

statement required under section 3409 is completed, whichever is sooner, and ending on the 

effective date of the renewed contract payable prior to the renewal of such contract, to be 

covered to the Restoration Fund; Provided, however, That this paragraph shall not apply to 

contracts renewed after January 1, 1988, and prior to the date of enactment of this title or, in 

the event the environmental impact statement required by section 3409 is not completed by 

October 1, 1997, to any holder of a contract in existence on the date of enactment of this title 

who enters into a binding agreement with the Secretary prior to October 1, 1997, to renew its 

contract immediately upon completion of that environmental impact statement, if such 

contract has not expired prior to such date.

(a) Water Transfers.--In order to assist California urban areas, agricultural water users, and others 

in meeting their future water needs, subject to the conditions and requirements of this subsection, 

all individuals or districts who receive Central Valley Project water under water service or 

repayment contracts, water rights settlement contracts or exchange contracts entered into prior to 

or after the date of enactment of this title are authorized to transfer all or a portion of the water 

subject to such contract to any other California water user or water agency, State or Federal 

agency, Indian Tribe, or private non-profit organization for project purposes or any purpose 

recognized as beneficial under applicable State law. Except as provided herein, the terms of such 

transfers shall be set by mutual agreement between the transferee and the transferor.
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(1) Conditions for Transfers.--All transfers to Central Valley Project water authorized by this 

subsection shall be subject to review and approval by the Secretary under the conditions 

specified in this subsection. Transfers involving more than 20 percent of the Central Valley 

Project water subject to long-term contract within any contracting district or agency shall also 

be subject to review and approval by such district or agency under the conditions specified in 

this subsection:

(A) No transfer to combination of transfers authorized by this subsection shall exceed, in 

any year, the average annual quantity of water under contract actually delivered to the 

contracting district or agency during the last three years of normal water delivery prior to 

the date of enactment of this title.

(B) All water under the contract which is transferred under authority of this subsection to 

any district or agency which is not a Central Valley Project contractor at the time of 

enactment of this title shall, if used for irrigation purposes, be repaid at the greater of the 

full-cost or cost of service rates, or, if the water is used for municipal and industrial 

purposes, at the greater of the cost of service or municipal and industrial rates.

(C) No transfers authorized by this subsection shall be approved unless the transfer is 

between a willing buyer and a willing seller under such terms and conditions as may be 

mutually agreed upon.

(D) No transfer authorized by this subsection shall be approved unless the transfer is 

consistent with State law, including but not limited to provisions of the California 

Environmental Quality Act.

(E) All transfers authorized by this subsection shall be deemed a beneficial use of water by 

the transferor for the purposes of section 8 of the Act of June 17, 1902, 32 Stat. 390, 43 

U.S.C. 372.

(F) All transfers entered into pursuant to this subsection for uses outside the Central Valley 

Project service area shall be subject to a right of first refusal on the same terms and 

conditions by entities within the Central Valley Project service area. The right of first refusal 

must be exercised within ninety days from the date that notice is provided of the proposed 

transfer. Should an entity exercise the right of first refusal, it must compensate the 

transferee who had negotiated the agreement upon which the right of first refusal is being 

exercised for that entity’s total costs associated with the development and negotiation of the 

transfer.

(G) No transfer authorized by this subsection shall be considered by the Secretary as 

conferring supplemental or additional benefits on Central Valley Project water contractors 

as provided in section 203 of Public Law 97-293 (43 U.S.C. 390(cc) ).

(H) The Secretary shall not approve a transfer authorized by this subsection unless the 

Secretary has determined, consistent with paragraph 3405(a) (2) of this title, that the 

transfer will not violate the provisions of this title or other Federal law and will have no 

significant adverse effect on the Secretary’s ability to deliver water pursuant to the 

Secretary’s Central Valley Project contractual obligations or fish and wildlife obligations 

under this title because of limitations in conveyance or pumping capacity.

(I) The water subject to any transfer undertaken pursuant to this subsection shall be limited 

to water that would have been consumptively used or irretrievably lost to beneficial use 

during the year or years of the transfer.
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(J) The Secretary shall not approve a transfer authorized by this subsection unless the 

Secretary determines, consistent with paragraph 3405(a) (2) of this title, that such transfer 

will have no significant long-term adverse impact on groundwater conditions in the 

transferor’s service area.

(K) The Secretary shall not approve a transfer unless the Secretary determines, consistent 

with paragraph 3405(a) (2) of this title, that such transfer will have no unreasonable impact 

on the water supply, operations, or financial conditions of the transferor’s contracting 

district or agency or its water users.

(L) The Secretary shall not approve a transfer if the Secretary determines, consistent with 

paragraph 3405(a) (2) of this title, that such transfer would result in a significant reduction 

in the quantity or decrease in the quality of water supplies currently used for fish and 

wildlife purposes, unless the Secretary determines pursuant to finding setting forth the basis 

for such determination that such adverse effects would be more than offset by the benefits 

of the proposed transfer. In the event of such a determination, the Secretary shall develop 

and implement alternative measures and mitigation activities as integral and concurrent 

elements of any such transfer to provide fish and wildlife benefits substantially equivalent to 

those lost as a consequence of such transfer.

(M) Transfers between Central Valley Project contractors within countries, watersheds, or 

other areas of origin, as those terms are utilized under California law, shall be deemed to 

meet the conditions set forth in subparagraphs (A) and (I) of this paragraph.

(2) Review and Approval of Transfers.--All transfers subject to review and approval under this 

subsection shall be reviewed and approved in a manner consistent with the following:

(A) Decisions on water transfers subject to review by a contracting district or agency or by 

the Secretary shall be rendered within ninety days of receiving a written transfer proposal 

from the transferee or transferor. Such written proposal should provide all information 

reasonably necessary to determine whether the transfer complies with the terms and 

conditions of this subsection.

(B) All transfers subject to review by a contracting district or agency shall be reviewed in a 

public process similar to that provided for in section 226 of Pub. L. 97-293.

(C) The contracting district or agency or the Secretary shall approve all transfers subject to 

review and approval by such entity if such transfers are consistent with the terms and 

conditions of this subsection. To disapprove a transfer, the contracting district or agency or 

the Secretary shall inform the transferee and transferor, in writing, why the transfer does 

not comply with the terms and conditions of this subsection and what alternatives, if any, 

could be included so that the transfer would reasonably comply with the requirements of 

this subsection.

(D) If the contracting district or agency or the Secretary fails to approve or disapprove a 

proposed transfer within ninety days of receiving a complete written proposal from the 

transferee or transferor, then the transfer shall be deemed approved.

(3) Transfers executed after September 30, 1999 shall only be governed by the provisions of 

subparagraphs 3405(a) (1) (A) -(C), (E), (G), (H), (I), (L), and (M) of this title, and by State law.

(b) Metering of Water Use Required.--All Central Valley Project water service or repayment 

contracts for agricultural, municipal, or industrial purposes that are entered into, renewed, or 
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amended under any provision of Federal Reclamation law after the date of enactment of this title, 

shall provide that the contracting district or agency shall ensure that all surface water delivery 

systems within its boundaries are equipped with water measuring devices or water measuring 

methods of comparable effectiveness acceptable to the Secretary within five years of the date of 

contract execution, amendment, or renewal, and that any new surface water delivery systems 

installed within its boundaries on or after the date of contract renewal are so equipped. The 

contracting district or agency shall inform the Secretary and the State of California annually as to 

the monthly volume of surface water delivered within its boundaries.

(c) State and Federal water Quality Standards.--All Central Valley Project water service or 

repayment contracts for agricultural, municipal, or industrial purposes that are entered into, 

renewed, or amended under any provision of Federal Reclamation law after the date of enactment 

of this title, shall provide that the contracting district or agency shall be responsible for 

compliance with all applicable State and Federal water quality standards applicable to surface and 

subsurface agricultural drainage discharges generated within its boundaries. This subsection shall 

not affect or alter any legal obligation of the Secretary to provide drainage services.

(d) Water Pricing Reform.--All Central Valley Project water service or repayment contracts for a 

term longer than three years for agricultural, municipal, or industrial purposes that are entered 

into, renewed, or amended under any provision of Federal Reclamation law after the date of 

enactment of this title shall provide that all project water subject to contract shall be made 

available to districts, agencies, and other contracting entities pursuant to a system of tiered water 

pricing. Such a system shall specify rates for each district, agency or entity based on an inverted 

block rate structure with the following provisions:

(1) the first rate tier shall apply to a quantity of water up to 80 percent of the contract total and 

shall not be less than the applicable contract rate;

(2) the second rate tier shall apply to that quantity of water over 80 percent and under 90 

percent of the contract total and shall be at a level halfway between the rates established under 

paragraphs (1) and (3) of this subsection;

(3) the third rate tier shall apply to that quantity of water over 90 percent of the contract total 

and shall not be less than the full cost rate; and

(4) the Secretary shall charge contractors only for water actually delivered. The Secretary shall 

waive application of this subsection as it relates to any project water delivered to produce a 

crop which the Secretary determines will provide significant and quantifiable habitat values for 

water fowl in fields where the water is used and the crops are produced; Provided, That such 

waiver shall apply only if such habitat values can be assured consistent with the goals and 

objectives of this title through binding agreements executed with or approved by the Secretary.

(e) Water Conservation Standards.--The Secretary shall establish and administer an office on 

Central Valley Project water conservation best management practices that shall, in consultation 

with the Secretary of Agriculture, the California Department of Water Resources, California 

academic institutions, and Central Valley Project water users, develop criteria for evaluating the 

adequacy of all water conservation plans developed by project contractors, including those plans 

required by section 210 of the Reclamation Reform Act of 1982.

(1) Criteria developed pursuant to this subsection shall be established within six months 

following enactment of this title and shall be reviewed periodically thereafter, but no less than 

every three years, with the purpose of promoting the highest level of water use efficiency 
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reasonably achievable by project contractors using best available cost-effective technology and 

best management practices. The criteria shall include, but not be limited to agricultural water 

suppliers’ efficient water management practices developed pursuant to California State law or 

reasonable alternatives.

(2) The Secretary, through the office established under this subsection, shall review and 

evaluate within 18 months following enactment of this title all existing conservation plans 

submitted by project contractors to determine whether they meet the conservation and 

efficiency criteria established pursuant to this subsection.

(3) In developing the water conservation best management practice criteria required by this 

subsection, the Secretary shall take into account and grant substantial deference to the 

recommendations for action specific to water conservation and drainage source reduction 

proposed in the Final Report of the San Joaquin Valley Drainage Program, entitled A 

Management Plan for Agricultural Subsurface Drainage and Related Problems on the Westside 

San Joaquin Valley (September 1990).

(f) Increased Revenues.--All revenues received by the Secretary as a result of the increased 

repayment rates applicable to water transferred from irrigation use to municipal and industrial use 

under subsection 3405(a) of this section, and all increased revenues received by the Secretary as a 

result of the increased water prices established under subsection 3405(d) of this section, shall be 

covered to the Restoration Fund.