B-202671, O.M., MAY 29, 1981

B-202671: May 29, 1981

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THE SECRETARY OF THE INTERIOR HAS AUTHORITY TO IMPOSE CONDITIONS ON WATER RESALES PROVIDED CONDITIONS ARE NOT CONTRARY TO PRIOR CONTRACTS OR SPECIFIC PROJECT AUTHORIZATIONS. JOB CODE 085550: WE HAVE BEEN REQUESTED BY CONGRESSMAN GEORGE MILLER IN LETTERS OF APRIL 30. DOES HE HAVE THE POWER TO LIMIT PROFITEERING IN EXISTING CONTRACTS? WE HAVE DISCUSSED THESE QUESTIONS WITH STAN FEINSTEIN OF YOUR STAFF WHO IS VERY KNOWLEDGEABLE OF THE ISSUES INVOLVED. IF YOU HAVE ANY QUESTIONS. SEC. 373 (1976) PROVIDES: "THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO PERFORM ANY AND ALL ACTS AND TO MAKE SUCH RULES AND REGULATIONS AS MAY BE NECESSARY AND PROPER FOR THE PURPOSE OF CARRYING OUT THE PROVISIONS OF THIS ACT RECLAMATION ACT INTO FULL FORCE AND EFFECT.".

B-202671, O.M., MAY 29, 1981

DIGEST: WATER USER ORGANIZATIONS AND OTHER INTERMEDIARIES SOMETIMES MAKE A PROFIT ON RESALES OF WATER OR RESERVOIR STORAGE RIGHTS RESULTING FROM GOVERNMENT PROJECTS, PRIMARILY THOSE BUILT UNDER RECLAMATION LAW. THE SECRETARY OF THE INTERIOR HAS AUTHORITY TO IMPOSE CONDITIONS ON WATER RESALES PROVIDED CONDITIONS ARE NOT CONTRARY TO PRIOR CONTRACTS OR SPECIFIC PROJECT AUTHORIZATIONS. THESE CONDITIONS MAY INCLUDE RESTRICTION ON PRICES CHARGED THIRD PARTIES OR REQUIRE ALL OR PART OF PROFITS TO BE PAID OVER TO UNITED STATES FOR THE RECLAMATION FUND.

REQUEST FOR LEGAL ASSISTANCE FOR CED 0-250, JOB CODE 085550:

WE HAVE BEEN REQUESTED BY CONGRESSMAN GEORGE MILLER IN LETTERS OF APRIL 30, 1980, AND JANUARY 6, 1981, TO RESPOND TO THE FOLLOWING LEGAL QUESTIONS:

(1) "IN YOUR OPINION, DOES EXISTING LAW PROVIDE THE SECRETARY WITH AUTHORITY, WHEN APPROVING OR DISAPPROVING WATER RESALES, TO COMPEL SELLERS TO REPAY PORTIONS OF THEIR PROFIT TO THE UNITED STATES? IF NOT, WOULD GAO RECOMMEND THAT SUCH AUTHORITY BE GRANTED TO THE SECRETARY THROUGH LEGISLATIVE ACTION?"

(2) "APPARENTLY, THE SECRETARY OF THE INTERIOR HAS, IN THE CASE OF A MONTANA WATER RESALE CONTRACT, IMPOSED A CEILING ON THE AMOUNT WHICH AN ORIGINAL PURCHASER COULD CHARGE A THIRD PARTY FOR WATER ORIGINALLY BOUGHT FROM THE UNITED STATES. *** DO YOU BELIEVE THAT THE SECRETARY CURRENTLY HAS THE AUTHORITY TO IMPOSE THIS PRICE CONTROL ON NEW CONTRACTS? DOES HE HAVE THE POWER TO LIMIT PROFITEERING IN EXISTING CONTRACTS? WOULD IT BE DESIRABLE TO CLARIFY OR EXPAND THIS AUTHORITY IN ORDER TO ASSURE THAT THIRD PARTIES DO NOT PAY EXORBITANT AMOUNTS FOR WATER PURCHASED VIA A FEDERAL CONTRACTOR?"

BASED ON OUR REPORTING TIME FRAME OF MID-MAY, WE NEED YOUR RESPONSE BY APRIL 24, 1981. WE HAVE DISCUSSED THESE QUESTIONS WITH STAN FEINSTEIN OF YOUR STAFF WHO IS VERY KNOWLEDGEABLE OF THE ISSUES INVOLVED. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT HAROLD PICHNEY AT 275-6076.

INDORSEMENT

DIRECTOR, CED:

RETURNED. REGARDING THE GENERAL WATER RECLAMATION AUTHORITIES OF THE SECRETARY OF THE INTERIOR, 43 U.S.C. SEC. 373 (1976) PROVIDES:

"THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO PERFORM ANY AND ALL ACTS AND TO MAKE SUCH RULES AND REGULATIONS AS MAY BE NECESSARY AND PROPER FOR THE PURPOSE OF CARRYING OUT THE PROVISIONS OF THIS ACT RECLAMATION ACT INTO FULL FORCE AND EFFECT."

CONTRACTS BETWEEN WATER USER ORGANIZATIONS AND THE DEPARTMENT OF THE INTERIOR'S (INTERIOR) WATER AND POWER RESOURCES SERVICE (SERVICE) (FORMERLY THE BUREAU OF RECLAMATION), FOR PROJECTS CONSTRUCTED WITH FEDERAL FUNDS UNDER RECLAMATION STATUTES ARE SUBJECT TO THE PROVISIONS OF THE APPLICABLE STATUTE. THIS IS OFTEN EXPLICITLY STATED IN SUCH CONTRACTS. FOR EXAMPLE, THE 1981 TEMPORARY WATER SERVICE CONTRACT WITH THE WESTLANDS WATER DISTRICT, SAN LUIS UNIT, CENTRAL VALLEY PROJECT, CALIFORNIA, STATES THAT IT IS "IN PURSUANCE GENERALLY OF THE ACT OF JUNE 17, 1902 (32 STAT. 388), AND ACTS AMENDATORY THEREOF OR SUPPLEMENTARY THERETO *** ALL COLLECTIVELY HEREINAFTER REFERRED TO AS THE FEDERAL RECLAMATION LAWS. ***"

ALSO, SUCH CONTRACTS OFTEN INCORPORATE A PROVISION REGARDING THE SALE OR TRANSFER OF WATER. THE WESTLANDS' CONTRACT PROVIDES AS FOLLOWS:

"WATER FURNISHED TO THE DISTRICT PURSUANT TO THIS CONTRACT SHALL NOT BE SOLD OR OTHERWISE DISPOSED OF FOR USE OUTSIDE THE DISTRICT WITHOUT PRIOR WRITTEN CONSENT OF THE CONTRACTING OFFICER THE SECRETARY OF THE INTERIOR OR HIS DULY AUTHORIZED REPRESENTATIVE."

FURTHER, THE INTERIOR DEPARTMENT APPROPRIATION ACT, 1939, THE ACT OF MAY 9, 1939, CH. 187, 52 STAT. 322, 23, POPULARLY CALLED THE HAYDEN O'MAHONEY AMENDMENT AND CODIFIED AS 43 U.S.C. SEC. 392A (1976) PROVIDED IN PERTINENT PART AS FOLLOWS:

"ALL MONEYS RECEIVED BY THE UNITED STATES IN CONNECTION WITH ANY IRRIGATION PROJECTS, *** CONSTRUCTED BY THE SECRETARY OF THE INTERIOR THROUGH THE BUREAU OF RECLAMATION, AND FINANCED IN WHOLE OR IN PART WITH MONEYS HERETOFORE OR HEREAFTER APPROPRIATED OR ALLOCATED THEREFOR BY THE FEDERAL GOVERNMENT, SHALL BE COVERED INTO THE RECLAMATION FUND, EXCEPT IN CASES WHERE PROVISION HAS BEEN MADE BY LAW OR CONTRACT FOR THE USE OF SUCH REVENUES FOR THE BENEFIT OF USERS OF WATER FROM SUCH PROJECT *** PROVIDED FURTHER, THAT NOTHING IN THIS SECTION SHALL BE CONSTRUED TO AMEND THE BOULDER CANYON PROJECT ACT (45 STAT. 1057), AS AMENDED, OR TO APPLY TO IRRIGATION PROJECTS OF THE OFFICE OF INDIAN AFFAIRS."

TO FURTHER THE GENERAL PURPOSES OF RECLAMATION PROJECTS, INCLUDING MULTIPURPOSE PROJECTS, THE SECRETARY MAY, IN OUR OPINION, UNDER THE BASIC AUTHORITY OF 43 U.S.C. SEC. 373, QUOTED ABOVE, PROPERLY REQUIRE WATER USER ORGANIZATIONS THAT WISH TO SELL OR OTHERWISE DISPOSE OF ALL OR PART OF A WATER SUPPLY OBTAINED THROUGH INTERIOR FOR PURPOSES NOT ORIGINALLY CONTEMPLATED, TO OBTAIN THE SECRETARY'S CONSENT TO THE TRANSACTION. SUCH CONSENT MAY BE PREDICATED ON THE ORGANIZATION'S AGREEMENT TO REASONABLE CONDITIONS. WHERE NOT CONTRARY TO THE UNDERLYING CONTRACT WITH THE ORGANIZATION OR SPECIFIC PROJECT AUTHORIZATIONS, ALL OR PART OF THE NET PROCEEDS OF THE SALE OR OTHER DISPOSAL, MAY BE REQUIRED TO BE PAID INTO THE RECLAMATION FUND UNDER THE HAYDEN-O'MAHONEY AMENDMENT.

IF THE SECRETARY THINKS IT MORE DESIRABLE, HE MIGHT, AS A CONDITION OF APPROVAL, LIMIT THE PRICE CHARGED A THIRD PARTY TO THAT PAID BY THE WATER USER ORGANIZATION PLUS EXPENSES INCURRED IN THE TRANSACTION. UNDERSTAND THAT THE SECRETARY HAS IN THE PAST IMPOSED SUCH CONDITIONS, INCLUDING PAYMENT INTO THE FUND, AND VIEW THIS AS A REASONABLE EXERCISE OF HIS AUTHORITY TO CONTRACT UNDER THE RECLAMATION LAWS. IN VIEW OF THE SUBSIDY ACCORDED WATER USERS UNDER THIS PROGRAM, WE PERCEIVE NO INEQUITY TO SUCH USERS IN A CONTRACTUAL REQUIREMENT THAT ALL OR PART OF THE PROCEEDS FROM WATER USES OTHER THAN THOSE COVERED BY THE CONTRACTUAL ARRANGEMENT BE RETURNED TO THE FUND.

IF, ON THE OTHER HAND, THE SECRETARY HAS GIVEN FINAL APPROVAL TO CONTRACTS FOR THE SALE OF A WATER SUPPLY UNDER WHICH A WATER USER ORGANIZATION WILL RETAIN THE DIFFERENCE BETWEEN ITS COST, INCLUDING ADMINISTRATIVE EXPENSES AND THE AMOUNT RECEIVED IN PAYMENT FROM A THIRD PARTY (A PROFIT), INTERIOR IS BOUND, IN THE ABSENCE OF FRAUD, OR ARBITRARY OR CAPRICIOUS ACTION. HOWEVER, REQUESTS FOR ADDITIONAL WATER SUPPLIES, AMENDMENTS OF PRIOR AGREEMENTS, ETC. MAY AFFORD THE OPPORTUNITY FOR THE IMPOSITION OF LIMITATIONS DISCUSSED ABOVE.

WE UNDERSTAND THAT THE MONTANA RESALE CONTRACT REFERRED TO IN CONGRESSMAN MILLER'S REQUEST INVOLVED THE SALE OF RESERVOIR SPACE AT AN ARMY CORPS OF ENGINEERS' PROJECT FOR WHICH THE SERVICE IS THE MARKETING AGENT, AND THAT THERE WAS NO WATER USER ORGANIZATION INVOLVED. APPARENTLY THE CONTRACT BETWEEN THE SERVICE AND THE PURCHASER, THE STATE OF MONTANA, CONTEMPLATED RESALES BY THE STATE TO WATER USERS. IN SUCH CIRCUMSTANCES, WE ARE AWARE OF NO LEGAL IMPEDIMENT TO THE SECRETARY'S DECISION TO LIMIT THE PRICE TO BE CHARGED TO THE ACTUAL WATER USERS.

IN SUMMARY, IT APPEARS THAT THE SECRETARY OF THE INTERIOR HAS BROAD AUTHORITY TO LIMIT THE PRICE CHARGED BY WATER USER ORGANIZATIONS OR OTHER INTERMEDIARIES FOR THE RESALE OF WATER FROM FEDERAL PROJECTS. ALSO, HE MAY PROVIDE, IN APPROPRIATE CASES, THAT AMOUNTS RECEIVED BY INTERMEDIARIES IN EXCESS OF COST AND ADMINISTRATIVE EXPENSES (PROFIT) BE PAID INTO THE RECLAMATION FUND. HOWEVER, IT WOULD BE OF SUBSTANTIAL BENEFIT IF INTERIOR WOULD ADOPT A UNIFORM POLICY AND APPROPRIATE REGULATIONS. THIS COULD INCLUDE STANDARD PROVISONS STATING THE REQUIREMENTS IN ALL NEW OR AMENDED CONTRACTS WITH WATER USER ORGANIZATIONS.