B-156046, AUG. 1, 1967

B-156046, AUG. 1, 1967

RECLAMATION PROJECTS - REPAYMENT OBLIGATIONS - USE PAYMENT CREDIT DECISION TO SECY. OF THE INTERIOR RE REQUEST OF KINGS RIVER CONSERVATION DISTRICT TO PERMIT WATER STORAGE USE PAYMENTS FOR PINE FLAT RESERVOIR TO BE CREDITED TOWARDS THE REPAYMENT OBLIGATION UNDER THE PERMANENT WATER STORAGE CONTRACT. IN ABSENCE OF ANY PROVISION IN THE RECLAMATION LAWS OR IN THE INTERIM AGREEMENTS TO PERMIT PAYMENTS MADE IN 1954 AND 1955 TO BE CREDITED TO THE OBLIGATION UNDER A PERMANENT CONTRACT, THERE IS NO OBLIGATION ON INTERIOR DEPT. TO MAKE SUCH A RETROACTIVE ADJUSTMENT.

TO MR. SECRETARY:

BY LETTER DATED MAY 25, 1967, WITH ENCLOSURES, THE DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION REQUESTED OUR VIEWS WITH REFERENCE TO THE REQUEST OF THE KINGS RIVER CONSERVATION DISTRICT THAT THE AMOUNT OF $1,098,579.92 PAID BY IT IN 1954 AND 1955 FOR WATER STORAGE USE OF THE PINE FLAT RESERVOIR BE CREDITED TOWARDS ITS REPAYMENT OBLIGATION UNDER ITS PERMANENT WATER STORAGE CONTRACT.

ALTHOUGH THE BACKGROUND OF THIS REQUEST FOR ADJUSTMENT AND THE HISTORY OF THE PINE FLAT DAM AND RESERVOIR ARE FULLY KNOWN TO THE PARTIES INVOLVED AND TO OTHER INTERESTED SOURCES, THE FOLLOWING IS PERTINENT TO THE ISSUES DISCUSSED HERE.

THE CONGRESS AUTHORIZED THE CONSTRUCTION OF THE PINE FLAT DAM BY THE ARMY IN SECTION 10 OF THE FLOOD CONTROL ACT OF 1944, 58 STAT. 887, 901. APPROPRIATION OF $1,000,000 TO START CONSTRUCTION WAS APPROVED BY THE CONGRESS IN MAY 1946 AND UPON SIGNING THE APPROPRIATION BILL, PRESIDENT TRUMAN IMPOUNDED THE FUNDS "PENDING DETERMINATION OF THE ALLOCATION OF COSTS AND THE MAKING OF THE NECESSARY REPAYMENT ARRANGEMENTS," AND HE DIRECTED THE SECRETARY OF THE INTERIOR TO INSTRUCT THE BUREAU OF RECLAMATION "TO PROCEED FORTHWITH TO MAKE THE NECESSARY REPAYMENT ARRANGEMENTS WITH PROSPECTIVE WATER USERS.' IT SEEMS THAT SHARP DIVISION APPEARED IMMEDIATELY BETWEEN THE GOVERNMENT AND THE WATER USERS, REPRESENTED BY THE KINGS RIVER CONSERVATION DISTRICT, OVER THE MATTER OF COST ALLOCATION, THE PRINCIPAL ISSUE BEING HOW MUCH SHOULD BE ASSIGNED TO NONREIMBURSABLE FLOOD CONTROL AND HOW MUCH TO IRRIGATION WHICH WOULD BE REPAYABLE BY THE WATER USERS. SINCE THE ARMY, THE BUREAU OF RECLAMATION, AND THE WATER USERS WERE NOT ABLE TO REACH AGREEMENT ON THE LOCAL LEVEL, THE MATTER WAS SUBMITTED IN 1946 TO DEPARTMENTAL OFFICIALS FOR DECISION. AGREEMENT WAS REACHED BETWEEN THE ARMY AND THE DEPARTMENT OF THE INTERIOR THAT THE IRRIGATION ALLOCATION SHOULD BE "AT AN AMOUNT NOT TO EXCEED $14,250,000, THE EXACT AMOUNT TO BE AS AGREED UPON BETWEEN THE BUREAU OF RECLAMATION AND THE LOCAL AGENCIES CONCERNED.'

IT IS REPORTED THAT CONSTRUCTION OF THE PINE FLAT DAM WAS STARTED IN APRIL 1947 AND THAT CONSTRUCTION WAS COMPLETED AND THE RESERVOIR WAS READY FOR USE BEFORE THE BUREAU OF RECLAMATION AND THE DISTRICT COULD AGREE ON THE TERMS OF A FINAL REPAYMENT CONTRACT. IT ALSO IS REPORTED THAT WITH NO END TO THE NEGOTIATIONS IN SIGHT, THE OBVIOUS STEP WAS TO MAKE SOME TEMPORARY ARRANGEMENT. AN INTERIM STORAGE USE CONTRACT WAS ENTERED INTO ON FEBRUARY 4, 1954, BETWEEN THE BUREAU OF RECLAMATION AND THE DISTRICT. THE AGREEMENT WAS DENOMINATED AN "INTERIM" CONTRACT BECAUSE NEGOTIATIONS FOR A PERMANENT CONTRACT GOVERNING THE REPAYMENT OBLIGATIONS OF THE DISTRICT COULD NOT BE CONSUMMATED WITHIN THE FORESEEABLE FUTURE. THE INTERIM CONTRACT PROVIDED FOR THE STORAGE AND RELEASE OF WATER AT THE RATE OF $1.50 PER ACRE FOOT OF WATER DURING THE 1953-1954 RUNOFF SEASON AND BY ITS TERMS EXPIRED ON DECEMBER 31, 1954. SINCE A PERMANENT REPAYMENT CONTRACT HAD NOT YET BEEN EXECUTED, THE TERM OF THE INTERIM USE CONTRACT WAS EXTENDED ON DECEMBER 31, 1954, FOR ANOTHER YEAR. THE AMOUNT OF $1,098,579.92 REPRESENTS PAYMENTS MADE BY THE DISTRICT DURING 1954 AND 1955 WHICH WERE IN EXCESS OF THE OPERATION AND MAINTENANCE COSTS FOR THOSE YEARS.

THE INTERIM CONTRACT FOR 1954, AS EXTENDED FOR THE 1955 RUNOFF PERIOD, DID NOT CONTAIN A PROVISION FOR CREDIT OF EXCESS PAYMENTS FOR OPERATION AND MAINTENANCE EXPENSES; WHEREAS, THE AMENDMENTS FOR THE 1956 RUNOFF YEAR AND SUBSEQUENT YEARS UP TO THE TIME THE PERMANENT REPAYMENT WAS EXECUTED SPECIFICALLY PROVIDED FOR CREDIT OF EXCESS PAYMENTS FOR THOSE YEARS AGAINST THE REPAYMENT OBLIGATION OF THE DISTRICT. THE POSITIONS OF YOUR DEPARTMENT AND THE DISTRICT CONCERNING THE AVAILABILITY OF THE $1,098,579.92 FOR CREDIT AGAINST THE DISTRICT'S REPAYMENT OBLIGATION ARE STATED AS FOLLOWS:

"THE KINGS RIVER PEOPLE HAVE SUMMARIZED THEIR ARGUMENT AS FOLLOWS: A SALE OF WATER WAS NOT INVOLVED; SEC. 8 OF THE FLOOD CONTROL ACT OF 1944 CANNOT OPERATE TO ALTER THE REPAYMENT BLIGATION; THE INTERIM CONTRACT WAS MERELY PART OF THE REPAYMENT ARRANGEMENTS AUTHORIZED BY THE FLOOD CONTROL ACT OF 1944, AND THAT ITS PURPOSE WAS TO PROVIDE FOR USE OF THE FACILITY AND REPAYMENT BY THE WATER USERS IN THE INTERIM UNTIL OTHER ISSUES COULD BE RESOLVED ENABLING THE UNITED STATES AND THE WATER USERS TO EXECUTE PERMANENT REPAYMENT CONTRACTS.

"THE FUNDAMENTAL ARGUMENT IN THE BRIEFS FOR BOTH THE KINGS RIVER CONSERVATION DISTRICT AND THE KINGS RIVER WATER ASSOCIATION IS THAT CONGRESS ENVISIONED PAYMENT OF A FIXED TOTAL AMOUNT EQUAL TO THE REPAYMENT OBLIGATION, EITHER IN LUMP SUM OR ANNUAL INSTALLMENTS, AND THAT PAYMENTS UNDER THE TWO INTERIM CONTRACTS MUST BE TREATED AS PAYMENT ON THAT TOTAL AMOUNT.

"ON THE OTHER HAND, THE POSITION OF THIS DEPARTMENT HAS BEEN THAT THE FIRST TWO INTERIM CONTRACTS ARE COMPLETE IN THEMSELVES AND CONTAIN NO PROVISION FOR CREDIT; THAT THEY PROVIDE AN INTERIM ARRANGEMENT WHILE THE PARTIES NEGOTIATED OUT SETTLEMENT OF THEIR VARIOUS DIFFERENCES, INCLUDING THE CREDIT PROBLEM; AND THAT TO INTRODUCE A CREDIT ARRANGEMENT NOW INTO THE FIRST TWO INTERIM CONTRACTS IS TO CHANGE THEM IN A MANNER WHICH THE PARTIES DID NOT THEN CONTEMPLATE.'

WE HAVE REVIEWED THE LEGISLATION COMPRISING THE APPLICABLE PROVISIONS OF THE FLOOD CONTROL ACT OF 1944, ESPECIALLY SECTION 8 (43 U.S.C. 390) AND SECTION 10 (58 STAT. 901), AND WE CONCLUDE, IN THE LIGHT OF THE RULINGS IN 41 OP. ATTY. GEN. 377; AND TURNER V. KINGS RIVER CONSERVATION DISTRICT, 360 F. 2D 184, 192, CITED IN THE MAY 25 LETTER, THAT THE PROVISIONS AND LIMITATIONS OF THE RECLAMATION LAWS ARE APPLICABLE TO THE INTERIM CONTRACTS OF 1954 AND 1955. UNDER 43 U.S.C. 485H/E/--SECTION 9/C) OF THE RECLAMATION PROJECT ACT OF 1939, AS AMENDED--THE SECRETARY, IN HIS DISCRETION, MAY ENTER INTO SHORT TERM CONTRACTS TO FURNISH WATER FOR IRRIGATION PURPOSES "AT SUCH RATES AS IN THE SECRETARY'S JUDGMENT WILL PRODUCE REVENUES AT LEAST SUFFICIENT TO COVER AN APPROPRIATE SHARE OF THE ANNUAL OPERATION AND MAINTENANCE COST AND AN APPROPRIATE SHARE OF SUCH FIXED CHARGES AS THE SECRETARY DEEMS PROPER, DUE CONSIDERATION BEING GIVEN TO THAT PART OF THE COST OF CONSTRUCTION OF WORKS CONNECTED WITH WATER SUPPLY AND ALLOCATED TO IRRIGATION * * * .'

THERE IS NO REQUIREMENT IN THIS PROVISION OF LAW THAT THE SECRETARY SHOULD FIX A RATE WHICH WILL NOT, UNDER ANY CIRCUMSTANCE, PRECLUDE AN OVERCHARGE; RATHER, THE SECRETARY IS CHARGED ONLY WITH THE RESPONSIBILITY OF FIXING A RATE "SUFFICIENT" TO COVER EXPENSES AND FIXED CHARGES. AFFIRMATIVE STATUTORY RELIEF IS PROVIDED IN THE 1939 ACT AS AMENDED IF THE "SUFFICIENT" RATE RESULTS IN EXCESSIVE PAYMENTS; HOWEVER, IN THE EXECUTION OF SHORT-TERM WATER SUPPLY CONTRACTS, THE SECRETARY, IN COGNIZANCE OF PAST CONTRACT OVERPAYMENTS RESULTING FROM A FIXED "SUFFICIENT" RATE, MAY PROVIDE IN LATER CONTRACTS FOR THE CREDITING OF EXCESS PAYMENTS TO A CONTRACTOR'S FIRM REPAYMENT OBLIGATION.

WE CANNOT AGREE WITH THE DISTRICT THAT "PAYMENTS" UNDER THE INTERIM CONTRACT AND AMENDMENTS MUST BE TREATED AS A TOTAL WHICH SHOULD EQUAL THE REPAYMENT OBLIGATION. IT IS EVIDENT THAT THE PARTIES TREATED EACH YEAR FROM 1954 TO 1963 AS INDEPENDENT WATER RUNOFF PERIODS AS TO WHICH THE SECRETARY COULD FIX A "SUFFICIENT" RATE. HE FIXED SUCH A RATE, WHICH CONTEMPLATED CREDITING FOR THE YEARS SUBSEQUENT TO 1955 AT THE TIME THE THEN-CURRENT AGREEMENT WAS EXPIRING AND WHEN THE SUCCEEDING YEAR AGREEMENT WAS BEING NEGOTIATED. THE PROVISIONS FOR CREDITING WERE OF PROSPECTIVE EFFECT ONLY AND RELATED ONLY TO THE PARTICULAR RUNOFF YEAR AND NOT TO PRIOR YEAR EXPIRED INTERIM AGREEMENTS WHEREIN NO CREDIT PROVISION WERE INCLUDED.

WE HAVE CONSIDERED THE CONTENTIONS RAISED BY THE ATTORNEYS FOR THE DISTRICT AND THE WATER ASSOCIATION AND WE HAVE CONCLUDED THAT NO- OVERRIDING CONSIDERATIONS HAVE BEEN PRESENTED TO REFUTE THE DEPARTMENT'S POSITION QUOTED ABOVE. ESSENTIALLY, WHAT THE PROPONENTS FOR ADJUSTMENT ARGUE IS FOR RETROACTIVE AMENDMENT OF THE 1954 AND 1955 AGREEMENTS WHICH HAVE BEEN COMPLETED WITHIN THEIR TERMS AND WHICH CONTAINED NO AUTHORITY FOR RETROACTIVE ADJUSTMENT. WE FIND NO AUTHORITY OF LAW EITHER IN THE RECLAMATION LAWS OR IN GENERAL CONTRACT LAW WHICH WOULD IMPOSE AN AFFIRMATIVE DUTY ON THE SECRETARY TO MAKE THE ADJUSTMENTS REQUESTED. THEREFORE ADVISE THAT WE ARE IN AGREEMENT WITH THE POSITION MAINTAINED BY YOUR DEPARTMENT FOR OVER 10 YEARS REGARDING THE OBLIGATION OF THE GOVERNMENT TO MAKE THE CREDIT ADJUSTMENT.

IN CONCLUSION, WE WOULD OBSERVE THAT OUR DECISION OF APRIL 5, 1965, TO YOU, REGARDING THE SETTLEMENT OF CERTAIN CLAIMS BY THE BUREAU OF RECLAMATION AGAINST THE TULARE LAKE BASIN WATER STORAGE DISTRICT AND THE LAST CHANCE WATER COMPANY FOR THE UNAUTHORIZED SALE OF WATER STORED IN THE PINE FLAT DAM AND RESERVOIR HAS BEEN CITED BY THE PROPONENTS IN SUPPORT OF THEIR POSITION. THE PERTINENT PORTION OF THAT DECISION READS:

"HOWEVER, TULARE AND LAST CHANCE ARE WILLING TO RELINQUISH THEIR CLAIM FOR A REFUND OF $85,500 IF THE GOVERNMENT WILL ABANDON ITS CLAIM FOR $114,000. YOUR DEPARTMENT RECOMMENDS FAVORABLE CONSIDERATION OF THE PROPOSAL. IN THAT CONNECTION, IT IS POINTED OUT THAT ALL PAYMENTS RECEIVED DURING THE INTERIM CONTRACT PERIOD ARE USED TO REDUCE THE PAYMENTS WHICH ARE REQUIRED TO BE MADE ON THE NOW EXECUTED PERMANENT CONTRACT. THUS, THE PAYMENTS MADE UNDER THE INTERIM CONTRACT ARE IN ANY EVENT NO MORE THAN AN ADVANCE PAYMENT ON THE PERMANENT CONTRACT.'

THAT DECISION DEALT WITH THE 1958 INTERIM AGREEMENT WHEREUNDER THE CREDITING OF EXCESS PAYMENTS AGAINST THE REPAYMENT OBLIGATION WAS SPECIFICALLY PROVIDED FOR ON A PROSPECTIVE BASIS. HENCE, THE ABOVE LANGUAGE MUST BE READ IN THE LIGHT OF THAT FACT AND NOT AS INDICATING THAT CREDITING WAS RECOGNIZED BY OUR OFFICE AS TO THE RUNOFF YEARS OF 1954 AND 1955 WHEN NO CREDITING WAS PROVIDED IN THE ANNUAL AGREEMENTS.