[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Proposed Rules]
[Pages 91556-91590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30017]



[[Page 91555]]

Vol. 81

Friday,

No. 242

December 16, 2016

Part VII





Department of Defense





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Department of the Army, U.S. Army Corps of Engineers





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33 CFR Part 209





Use of U.S. Army Corps of Engineers Reservoir Projects for Domestic, 
Municipal & Industrial Water Supply; Proposed Rule

  Federal Register / Vol. 81 , No. 242 / Friday, December 16, 2016 / 
Proposed Rules  

[[Page 91556]]


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DEPARTMENT OF DEFENSE

Department of the Army, U.S. Army Corps of Engineers

33 CFR Part 209

[COE-2016-0016]
RIN 0710-AA72


Use of U.S. Army Corps of Engineers Reservoir Projects for 
Domestic, Municipal & Industrial Water Supply

AGENCY: Army Corps of Engineers, DoD.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Army, U.S. Army Corps of Engineers 
(Corps) proposes to update and clarify its policies governing the use 
of its reservoir projects for domestic, municipal and industrial water 
supply pursuant to Section 6 of the Flood Control Act of 1944 and the 
Water Supply Act of 1958 (WSA). Specifically, the Corps proposes to 
define key terms under both statutes and to respond to issues that have 
arisen in exercising these authorities, in order to take into account 
court decisions, legislative provisions, and other developments. The 
Corps intends through this rulemaking to explain and improve its 
interpretations and practices under these statutes, and seeks comment 
from all interested stakeholders on those interpretations and 
practices. The proposed rule is intended to enhance the Corps' ability 
to cooperate with State and local interests in the development of water 
supplies in connection with the operation of its reservoirs for federal 
purposes as authorized by Congress, to facilitate water supply uses of 
Corps reservoirs by others as contemplated under applicable law, and to 
avoid interfering with lawful uses of water by any entity when the 
Corps exercises its discretionary authority under either Section 6 or 
the WSA. The proposed rule would apply only to reservoir projects 
operated by the Corps, not to projects operated by other federal or 
non-federal entities, and it would not impose requirements on any other 
entity, alter existing contractual arrangements at Corps reservoirs, or 
require operational changes at any Corps reservoir. The Corps intends 
by this rulemaking proposal to initiate a positive dialogue with 
stakeholders on these important issues, and to promote program 
certainty and efficiency by ultimately establishing a uniform 
understanding of Section 6 and the WSA, and the range of activity 
authorized thereunder.

DATES: Comments must be received by February 14, 2017.

ADDRESSES: You may submit comments, identified by docket number and/or 
Regulatory Information Number (RIN) and title, by any of the following 
methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: [email protected]. Include the docket number, COE-
2016-0016, in the subject line of the message.
    Mail: U.S. Army Corps of Engineers, ATTN: CECC-L, U.S. Army Corps 
of Engineers, 441 G St NW., Washington, DC 20314.
    Hand Delivery/Courier: Due to security requirements, we cannot 
receive comments by hand delivery or courier.
    Instructions: Direct your comments to docket number COE-2015-0016. 
All comments received will be included in the public docket without 
change and may be made available on-line at http://www.regulations.gov, 
including any personal information provided, unless the commenter 
indicates that the comment includes information claimed to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Do not submit information that you 
consider to be CBI, or otherwise protected, through regulations.gov or 
email. The regulations.gov Web site is an anonymous access system, 
which means we will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an email 
directly to the Corps without going through regulations.gov your email 
address will be automatically captured and included as part of the 
comment that is placed in the public docket and made available on the 
Internet. If you submit an electronic comment we recommend that you 
include your name and other contact information in the body of your 
comment and with any disk or CD-ROM you submit. If we cannot read your 
comment because of technical difficulties and cannot contact you for 
clarification we may not be able to consider your comment. Electronic 
comments should avoid the use of any special characters, any form of 
encryption, and be free of any defects or viruses.
    Docket: For access to the docket to read background documents or 
comments received, go to regulations.gov. All documents in the docket 
are listed. Although listed in the index, some information is not 
publicly available, such as CBI or other information whose disclosure 
is restricted by statute. Certain other material, such as copyrighted 
material, is not placed on the Internet and will be publicly available 
only in hard copy.

FOR FURTHER INFORMATION CONTACT: 
    Technical information: Jim Fredericks, 503-808-3856.
    Legal information: Daniel Inkelas, 202-761-0345.

SUPPLEMENTARY INFORMATION:
    Executive Summary:
    The proposed rule would formally set forth the Department of the 
Army, U.S. Army Corps of Engineers' (Corps') interpretation of its 
authority under both Section 6 of the Flood Control Act of 1944, 33 
U.S.C. 708 (Section 6), and the Water Supply Act of 1958, 43 U.S.C. 
390b (WSA), by defining key statutory terms and explaining the 
differences between the activities authorized under each of these 
authorities. The proposed rule would also explain the Corps' approach 
to important policy questions that have arisen nationwide, including 
the pricing of surplus water agreements under Section 6, the 
reallocation of storage under the WSA, and accounting of storage usage 
and return flows under WSA agreements, and would solicit public input 
and comments on those subjects. The rule will also clarify and simplify 
processes for approving and entering into water supply agreements at 
Corps reservoirs, and includes procedures for coordinating with States, 
Tribes, and other federal agencies to ensure that water rights are 
protected and the views, expertise, and prerogatives of others are 
taken into account. The overall intent of the proposed rule is to 
enhance the Corps' ability to cooperate with State and local interests 
by facilitating water supply uses of Corps reservoirs in a manner that 
is consistent with the authorized purposes of those reservoirs, and 
does not interfere with lawful uses of water under State law or other 
Federal Law. The proposed rule would apply only to reservoir projects 
operated by the Corps, not to projects operated by other federal or 
non-federal entities.

Table of Contents

 
 
 
I. Background...................................................       7
    A. Purpose of Rulemaking....................................       7
    B. Summary of Proposed Rule.................................      15

[[Page 91557]]

 
    C. Rationale for Proposed Rule..............................      28
    1. Authority to Use Corps Reservoirs for Water Supply.......      28
    2. Section 6 of the Flood Control Act of 1944, 33 U.S.C. 708      32
     (Section 6)................................................
    (a) Definition of ``Surplus Water''.........................      36
    (1) Alternative Definition of ``Surplus Water'' Excluding         46
     ``Natural Flows'' (Missouri River Basin Views).............
    (b) Definition of ``Reservoir'' Under Section 6.............      49
    (c) Definition of ``Domestic and Industrial Uses'' Under          50
     Section 6..................................................
    (d) Avoiding Adverse Effects on ``Then Existing Lawful            57
     Uses''.....................................................
    (e) Determining ``Reasonable'' Prices for Section 6               59
     Agreements.................................................
    (f) Documentation of Surplus Water Agreements...............      71
    (g) Duration of Surplus Water Determinations and Agreements.      72
    3. The Water Supply Act of 1958, 43 U.S.C. 390b (WSA).......      74
    (a) Definition of ``Reservoir Project'' and ``Project''.....      76
    (b) Definition of ``Water Supply,'' ``Municipal or                77
     Industrial Water'' and ``Municipal and Industrial Water
     Supply''...................................................
    (c) Meaning of the Phrase ``Storage May Be Included'' for         79
     Water Supply...............................................
    (d) Determining the Cost of Including Storage for Water           82
     Supply.....................................................
    (e) Limitations on Authority To Modify Projects To Include        87
     Water Supply Storage.......................................
    (f) Storage Accounting, ``Return Flows,'' and Water Supply        96
     Storage Agreements.........................................
    4. Policies for Complementary Administration of Section 6        103
     and the WSA................................................
II. Scope of This Proposed Rule.................................     105
III. Administrative Requirements................................     106
    A. Executive Order 12866, ``Regulatory Planning and              106
     Review,'' and Executive Order 13563, ``Improving Regulation
     and Regulatory Review''....................................
    B. Unfunded Mandates Reform Act (Pub. L. 104-4, Sec.   202).     116
    C. Regulatory Flexibility Act, As Amended by the Small           117
     Business Regulatory Enforcement Fairness Act of 1996, 5
     U.S.C. 601 et seq..........................................
    D. Paperwork Reduction Act, 44 U.S.C. 3501 et seq...........     122
    E. Executive Order 13132, ``Federalism''....................     123
    F. Executive Order 13175, ``Consultation and Coordination        126
     With Indian Tribal Governments''...........................
    G. Congressional Review Act, 5 U.S.C. 801 et seq............     127
    H. Executive Order 13211, ``Actions Concerning Regulations       128
     That Significantly Affect Energy Supply, Distribution or
     Use''......................................................
    I. Plain Language...........................................     128
    J. Environmental Documentation..............................     129
 

I. Background

A. Purpose of Rulemaking

    The purpose of the proposed rulemaking is to seek public comment on 
the Corps' interpretation of key provisions of Section 6 and the WSA, 
and on the Corps' proposed policies to more clearly and effectively 
provide for use of its reservoirs within the authority conferred by 
these two statutes. The Corps has utilized these authorities at 
different times since their enactment in 1944 and 1958, respectively, 
to accommodate water supply uses at more than one hundred Corps 
reservoirs nationwide.\1\ However, the Corps has never set forth, in 
formal, notice-and-comment regulations, a definitive interpretation of 
these authorities or a complete statement of the policies that govern 
their use. The Corps' existing water supply policies and practices are 
generally set forth in an internal publication, Engineer Regulation 
(ER) 1105-2-100, Planning Guidance Notebook (Apr. 22, 2000). This 
guidance has not been updated to reflect recent legal opinions, 
judicial decisions, and legislation affecting Section 6 and the WSA, 
does not fully articulate the Corps' understanding of the differing 
Congressional intent behind the two statutes, and does not clearly 
define the Corps facilities to which the statutes apply, or the types 
of water uses, that can be accommodated under Section 6 and the WSA.
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    \1\ See U.S. Army Corps of Engineers, Institute for Water 
Resources, 2014 Municipal, Industrial and Irrigation Water Supply 
Database Report at 5-6 (August 2015), available at http://www.iwr.usace.army.mil/Portals/70/docs/iwrreports/2015-R-02_Municipal_Industrial_and_Irrigation_Water_Supply_Database_Report.pdf. Of the more than 300 water supply agreements currently in effect 
at Corps reservoirs, the great majority are storage agreements under 
the authority of the Water Supply Act of 1958, 43 U.S.C. 390b 
(``WSA''), with only a small number of surplus water agreements--9, 
as of 2014--pursuant to Section 6 of the Flood Control Act of 1944, 
33 U.S.C. 708 (``Section 6'').
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    In the absence of more formal regulations, and in response to 
different issues that have arisen over time, practices have varied 
across the Corps' multiple District offices. In the past, some water 
supply agreements have been based on different or uncertain statutory 
authority, and have contained unclear or inconsistent terms and 
conditions. The majority of agreements have been entered into pursuant 
to the WSA, providing approximately 10 million acre-feet of storage for 
water supply in Corps reservoirs. These WSA agreements provide for the 
use of storage, but in many cases do not clearly set forth the amount 
of water that can be withdrawn under the agreement, or how the 
availability of water in storage will be determined. Some Corps 
Districts have developed storage accounting practices to measure 
storage usage and the availability of water for withdrawal, but those 
practices have not been formally adopted nationwide. The Corps has only 
rarely entered into surplus water contracts under Section 6, with fewer 
than ten such agreements in effect as of 2016. In many cases--
approximately 1,600, according to a 2012 audit--the Corps has allowed 
water to be withdrawn from its reservoirs simply by means of an 
easement across federal project lands, without formal water supply 
agreements citing a specific authority, without formal determinations 
that surplus water is available, and without clear documentation of 
impacts to other authorized purposes or costs incurred by the 
Government in authorizing the withdrawals.\2\
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    \2\ The Corps recognizes that water supply uses of Corps 
reservoirs, including the Missouri River mainstem reservoirs, may be 
made under separate legislative authority. See, e.g., Flood Control 
Act of 1944, Public Law 78-534 Sec. Sec.  8, 9, 58 Stat. 891 (Dec. 
22, 1944); Memorandum of Agreement Between the Department of the 
Interior, Bureau of Reclamation and the Department of the Army, U.S. 
Army Corps of Engineers for Joint Procedures Regarding Reclamation 
Water-Related Activities Associated with the Missouri River in 
Montana and North and South Dakota (Feb. 21, 2014). The proposed 
rule would not affect implementation of these authorities.
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    Meanwhile, the Corps' operation of reservoir projects in connection 
with water supply has come under increased scrutiny, as some parties 
have questioned the authority for those operations in litigation, and 
others have

[[Page 91558]]

expressed concerns that the Corps' implementation of its water supply 
authorities may impinge upon other authorized purposes, or sovereign 
prerogatives to allocate rights to consumptive uses of water. Steadily 
increasing demands for limited supplies of water at Corps reservoirs, 
interstate conflicts over water use, and pressures from drought, 
environmental changes, and aging infrastructure are expected to 
intensify all of the above concerns.\3\ This notice-and-comment 
rulemaking is intended to bring greater clarity and consistency to the 
Corps' implementation of Section 6 and the WSA, facilitate access to 
Corps reservoirs for water supply where water can be made available 
under Section 6 or the WSA, provide clear documentation of the 
potential impacts to other authorized purposes, promote more effective 
cooperation with State and local interests in the development of water 
supplies, and allow for the development of new policies to address 
complex issues that have arisen since the statutes were enacted.
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    \3\ See generally U.S. Army Corps of Engineers, Institute for 
Water Resources, Status and Challenges for USACE Reservoirs (May 
2016), available at http://www.iwr.usace.army.mil/Portals/70/docs/iwrreports/2016-RES-01.pdf.
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    Within the Corps' Northwestern Division area of operations, 
uncertainty over Corps policies and practices has engendered opposition 
in connection with proposals to enter into surplus water agreements 
under Section 6, and a proposed WSA reallocation study for the Missouri 
River mainstem reservoirs. In practice, the Corps has authorized 
numerous water supply withdrawals by non-federal entities from its 
mainstem reservoirs without clearly stating the authority for the 
withdrawals, without entering into separate water supply agreements, 
and without charging any fee for such agreements. Although the Corps 
has recently identified, in draft and final Surplus Water Reports for 
the six mainstem reservoirs, sufficient quantities of surplus water in 
those reservoirs to accommodate all existing and projected water 
withdrawals over a ten-year period, some stakeholders have submitted 
public comments critical of some of the conclusions and recommendations 
contained in the draft Surplus Water Reports. Some commenters have 
objected to the Corps' proposal to enter into surplus water agreements 
(in addition to easements necessary to cross federal project land) when 
authorizing withdrawals from the mainstem reservoirs, and to impose a 
charge for those agreements, based on the cost of providing the amount 
of storage in the reservoir calculated to yield the quantity of water 
desired. Others have questioned whether surplus water withdrawals from 
the mainstem reservoirs actually utilize storage, and whether it is 
reasonable to charge for surplus water withdrawals based upon the cost 
of storage, if those withdrawals could be made from the natural flow of 
the river absent reservoir storage. In addition, States and Tribes have 
expressed concern that proposed actions would interfere with citizens' 
rights to gain access to Missouri River flows, and limit or impinge 
upon existing uses of water, State prerogatives to allocate water 
resources, and Tribal reserved water rights. The Assistant Secretary of 
the Army (Civil Works) has expressed her intent that the Corps develop 
a nationwide pricing policy under Section 6 with public input, through 
notice-and-comment rulemaking, and in the meantime, Congress has 
enacted legislation precluding charges for uses of surplus water from 
the Corps' Missouri River mainstem reservoirs for a ten-year period. 
This background, including the recent legislation, illustrates the need 
for the Corps to clarify its interpretation and implementation of its 
Section 6 authority.
    In the Corps' South Atlantic Division area of operations, recent 
litigation has highlighted the need for clearer, more consistent water 
supply policies under the WSA, and the need to consider issues not 
addressed by current Corps guidance. In litigation regarding the Corps' 
operation of reservoir projects in the Apalachicola-Chattahoochee-Flint 
(ACF) and Alabama-Coosa-Tallapoosa (ACT) River basins, two federal 
courts found that the Corps' actual or potential operation of Lake 
Lanier in the ACF basin to accommodate water supply uses in Georgia 
exceeded the Corps' authority under the WSA. See Southeastern Federal 
Power Customers, Inc. v. Geren, 514 F.3d 1316, 1324 (D.C. Cir. 2008); 
In re Tri-State Water Rights Litigation, 639 F. Supp. 2d 1308, 1347 
(M.D. Fla. 2009), rev'd, 644 F.3d 1160 (11th Cir. 2011). That 
litigation culminated in a decision by the U.S. Court of Appeals for 
the Eleventh Circuit in 2011, reversing and vacating a district court 
judgment and directing that the case be remanded to the Corps to make a 
final determination as to its legal authority under several statutes, 
including the WSA, to accommodate water supply from the Lake Lanier 
project. In re MDL-1824 Tri-State Water Rights Litigation, 644 F.3d 
1160 (11th Cir. 2011). In issuing that remand order, the Eleventh 
Circuit encouraged the Corps to consider a number of policy issues not 
addressed in the Corps' existing guidance, including the optimal 
methodology for determining whether a proposed action is within the 
authority of the WSA, ``whether percent reallocation of storage is the 
correct or sole measure of operational change'' under the WSA, or 
whether increases in water supply use over time ``constitute a `change' 
of operations at all''; the relationship of multiple authorized 
purposes and statutory authorities; and whether and how to account for 
``return flows'' in connection with water supply uses of a Corps 
reservoir. Id. at 1196 n. 31, 1200-1206.
    In response to the Eleventh Circuit remand order, the Corps' Chief 
Counsel prepared a legal opinion, building on a 2009 legal opinion that 
had addressed the authority for then-current withdrawals from Lake 
Lanier, clarifying the Corps' interpretation of its authority under the 
WSA. Earl H. Stockdale, Chief Counsel, Memorandum for the Chief of 
Engineers, Subject: Authority to Provide for Municipal and Industrial 
Water Supply from the Buford Dam/Lake Lanier Project, Georgia (June 25, 
2012) (2012 Chief Counsel Legal Opinion), available at http://www.sam.usace.army.mil/Portals/46/docs/planning_environmental/acf/docs/2012ACF_legalopinion.pdf. That opinion applied to Lake Lanier and the 
federal ACF system of projects specifically. It examined the 
legislative history of the WSA, as well as the authorizations for the 
federal ACF projects, set forth the Corps' understanding of the limits 
of its authority under those statutes, and identified certain technical 
considerations that must be analyzed in order to determine the legal 
authority for proposed inclusions of storage at Lake Lanier pursuant to 
the WSA. The opinion was filed with the court in compliance with the 
remand order, and led to the entry of final judgment in the Tri-State 
Water Rights Litigation. However, the Chief Counsel's legal opinion did 
not resolve a number of outstanding policy issues, including methods of 
accounting for storage usage and return flows; and the Corps' internal 
water supply policies contained in ER 1105-2-100 have not been updated 
to take account of the general legal tenets set forth in the opinion. 
The Assistant Secretary of the Army (Civil Works) has indicated that 
outstanding issues under the WSA should be addressed through a 
nationwide, notice-and-comment rulemaking.
    The proposed rule would address the specific issues that have 
arisen most notably in the Corps' Northwestern and

[[Page 91559]]

South Atlantic Divisions, but is also intended to provide greater 
clarity, consistency, and efficiency in implementing Section 6 and the 
WSA nationwide. Numerous parties have urged the Corps to undertake 
rulemaking to address water supply issues, and the Administration has 
included this rulemaking initiative in its Unified Agenda of Regulatory 
and Deregulatory Actions published by the Office of Management and 
Budget. The Corps solicits comments on the proposed rule and 
suggestions for improvements that could be made to Corps policies and 
practices in this area. The Corps intends, through this rulemaking 
process, to initiate a positive dialogue with all interested parties, 
resulting in a final rule that will more effectively accomplish 
Congressional intent regarding the utilization of Corps reservoirs for 
water supply. We are not proposing to require changes to current 
Section 6 and WSA agreements. All new agreements entered into after the 
effective date of the final rule, as well as new agreements for users 
with expiring water supply agreements, will comply with the rule. 
Current uses that are occurring pursuant to easements only, without 
water supply agreements, will be reassessed when the easements expire, 
or within five years of the effective date of the final rule, whichever 
is earlier. If those withdrawals are found to require a Section 6 
surplus water contract or a WSA storage agreement, the appropriate 
agreement shall be required in order for the withdrawals to continue. 
We are soliciting comment on the effective date and transition period.
    The proposed rule is not intended to upset the balance between 
federal purposes and State prerogatives, or to assert greater federal 
control over water resources, or to interfere with the responsibilities 
of other federal agencies under other laws, such as the federal 
reclamation laws implemented by the Department of the Interior, or the 
marketing of federal hydropower by the Department of Energy through the 
four federal Power Marketing Administrations (PMAs). It is also not 
intended to interfere with or preempt the Environmental Protection 
Agency's Clean Water Act (CWA) authorities and responsibilities to 
restore and maintain the chemical, physical, and biological integrity 
of the Nation's waters. The proposed rule would apply only to reservoir 
projects operated by the Corps, not to projects operated by other 
federal or non-federal entities.\4\
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    \4\ The Corps recognizes that certain provisions of the WSA 
authorize actions by the Secretary of the Interior, and apply to 
reservoir projects of the Department of the Interior, Bureau of 
Reclamation. This proposed rule is intended only to interpret the 
WSA authority as it pertains to the Department of the Army and Corps 
facilities. It would have no effect on the authorities governing 
projects operated by the Bureau of Reclamation, or on the Bureau of 
Reclamation's discretion to determine whether and how to apply the 
WSA to its projects.
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    Nor would the proposed rule itself result in any physical changes 
or changes to operations at Corps reservoirs. The Corps constructs and 
operates its reservoir projects pursuant to specific Congressional 
authorization, and adopts water control plans and manuals to govern 
operations for authorized purposes. Operating manuals are reviewed 
periodically and may be updated for a variety of reasons, including 
changing requirements resulting from developments in the project area 
and downstream, improvements in technology, changes in hydrology, 
opportunities for enhanced coordination with other federal reservoirs, 
new legislation and other relevant factors. See 33 CFR 222.5(f); 
Engineer Regulation (ER) 1110-2-240, Water Control Management at 3-3 
(May 30, 2016). Before promulgating or revising water control manuals, 
or including storage for water supply, or finalizing a surplus water 
determination, the Corps solicits public comment, prepares all required 
documentation, and complies with applicable law, including but not 
limited to the CWA, the Endangered Species Act (ESA), and the National 
Environmental Policy Act (NEPA). When proposing to reallocate storage 
for water supply under the WSA and prior to issuance of a final surplus 
water determination, the Corps prepares, and considers public comments 
on, reports evaluating such proposals, including evaluation of 
environmental impacts, effects on operations for authorized purposes, 
and continued compliance with applicable law. See ER 1105-2-100 at E-
214 to E-216. The proposed rule would reinforce these practices by 
defining key terms under both statutes, clarifying policies, and 
providing for improved coordination with the public and other federal 
agencies prior to taking final action pursuant to Section 6 or the WSA. 
The proposed rule would bring greater clarity and consistency to the 
Corps' implementation of Section 6 and the WSA, but would not itself 
cause particular decisions to be made or actions to be taken at 
particular projects. Decisions or actions for a particular project 
would be made only after the reporting and documentation requirements 
described above are met for that project.

B. Summary of Proposed Rule

    The proposed rule seeks to clarify the Corps' understanding of the 
Congressional intent behind Section 6 and the WSA, define key statutory 
terms, more clearly delineate the authority conferred under each 
statute, and establish policies that would improve efficiency and 
coordination with States, federal agencies, and other stakeholders 
regarding water supply uses of Corps reservoirs. The proposed rule is 
intended to ensure that the Corps carries out its authority under 
Section 6 and the WSA in a manner that does not interfere with State, 
Tribal, or other water rights, and that recognizes related 
responsibilities and authorities under the CWA, ESA, NEPA, and other 
federal law. Section 6 and the WSA are discretionary statutes that 
authorize the Secretary of the Army to make Corps reservoirs available 
for water supply uses, under different terms as set forth in the 
statutes. The proposed rule would acknowledge that when the Corps acts 
pursuant to either Section 6 or the WSA, the Corps does not issue, 
sell, adjudicate, or allocate water rights for domestic, municipal, 
industrial, or other consumptive uses. Rather, under both statutes, the 
Corps makes water in a Corps reservoir available for water supply use 
by others. These users are exercising their separately-derived water 
rights, and they bear the sole responsibility to acquire and defend any 
water rights necessary to make withdrawals, in accordance with State or 
other applicable law.
    Section 6 authorizes the Secretary of the Army to enter into 
agreements ``for domestic and industrial uses of surplus water that may 
be available at any [Corps] reservoir,'' provided that use does not 
``adversely affect then existing lawful uses of such water.'' The term 
``surplus water'' is not defined in the statute, but plainly refers to 
water that is already present at a Corps reservoir at a particular 
moment in time, and which could be withdrawn without conflict with 
other lawful uses of water. Section 6 does not make water supply a 
purpose of any Corps reservoir project, but does enable the Corps to 
allow individual users to make withdrawals from any Corps reservoir if 
surplus water is available. The WSA, on the other hand, authorizes the 
Corps to ``include storage'' in a reservoir project ``to impound 
water'' for municipal and industrial water supply uses, effectively 
making that water supply storage an authorized purpose of the project, 
on the condition that State or local interests agree to pay a share of 
reservoir costs, on the principle that project costs shall

[[Page 91560]]

be allocated among the authorized purposes of the reservoir in 
proportion to the benefits realized for those purposes. The WSA 
therefore envisions making water supply an authorized purpose of a 
Corps reservoir project, so that storage in the reservoir is available 
for long-term, current and future water supply needs. The proposed rule 
would provide clearer distinctions between the two statutory 
authorities, while also providing consistent definitions of terms that 
are common or similar in the two statutes.
    The proposed rule would provide a common definition of the terms 
``reservoirs,'' ``projects'' and ``reservoir projects'' that are 
employed in Section 6 and the WSA, to clarify which Corps facilities 
are subject to those acts. The Corps believes that the terms employed 
in both statutes should be read expansively to include any Corps 
facility that impounds water and is capable of being operated for 
multiple purposes and objectives. Any other Corps water resource 
development facility that does not impound water, or that may not be 
operated for multiple purposes and objectives, could not reasonably be 
expected to serve as a source of water supply for others, and therefore 
would not be included within the proposed definitions. The proposed 
definitions would also acknowledge that these terms may comprise 
individual facilities or a system of improvements, depending on 
Congressional intent expressed in the relevant authorizing legislation.
    The proposed rule would also include parallel definitions of the 
terms ``domestic and industrial uses,'' for which surplus water can be 
made available under Section 6, and ``municipal and industrial water 
supply,'' for which storage can be included under the WSA. The proposed 
rule would define these terms broadly, to encompass all uses of water 
under an applicable water rights allocation system other than 
irrigation uses as provided under 43 U.S.C. 390. These definitions are 
intended to enable the Corps to accommodate withdrawals of water from 
Corps reservoirs by individuals or entities that hold rights to the use 
of that water, without interfering with other lawful uses of that 
water, and without interfering with the authority of the U.S. 
Department of the Interior pursuant to the federal reclamation laws. 
The Corps believes that these interpretations are respectful of the 
rights of States and Tribes, consistent with other Federal interests, 
rights and authorities, and consistent with Congressional intent, as 
expressed through the text of both Section 6 and the WSA.
    With regard to Section 6 specifically, the proposed rule offers new 
definitions of ``surplus water'' and ``then existing lawful uses.'' The 
proposed rule would define the term ``surplus water,'' as used in 
Section 6, as water that is not required during a specific time period 
to accomplish an authorized purpose or purposes of that reservoir. As 
explained below, the Corps interprets this to mean water available at a 
Corps reservoir that is not needed for (i.e., is surplus to) federal 
project purposes, because the authorized purpose or purposes for which 
such water was originally intended have not fully developed; because 
the need for water to accomplish such authorized purpose or purposes 
has lessened; or because the amount of water to be withdrawn, in 
combination with any other such withdrawals during the specified time 
period, would have virtually no effect on operations for authorized 
purposes. The consideration of how much water is needed for authorized 
purpose depends in each case on the Congressional authorization for the 
project in question, and on the particular facts and circumstances. 
Accordingly, as explained below, the proposed rule would recognize that 
surplus water determinations require both technical and legal analysis 
of the circumstances and project authorization. We invite comments on 
whether there may be a minimum or de minimis threshold amount of water 
that could meet these requirements, particularly the ``virtually no 
effect'' requirement.
    Additionally, at projects with a hydropower purpose, under the 
proposed rule, the Corps would coordinate surplus water determinations 
in advance with the applicable federal PMA, and utilize in its 
determinations any information that the PMA provides regarding 
potential impacts to the federal hydropower purpose, including revenues 
and benefits foregone. To the extent that water is determined to be 
required for a federal purpose, it would not be considered ``surplus'' 
under the proposed rule. The revised definition of ``surplus water'' 
would conform to the statutory language and help to distinguish the 
Corps' authority to make ``surplus water'' available under Section 6 
from its authority to include storage for water supply as a project 
purpose under the WSA.
    We also invite comments on monitoring procedures that the Corps 
might implement to assess whether withdrawals under a surplus water 
contract either cause an exceedance of the amount of water determined 
to be surplus or utilize reservoir storage that is allocated to another 
active purpose.
    The proposed rule would define the phrase ``then existing lawful 
uses'' to mean ``uses authorized under a State water rights allocation 
system, or Tribal or other uses pursuant to federal law, that are 
occurring at the time of the surplus water determination, or that are 
reasonably expected to occur during the period for which surplus water 
has been determined to be available.'' The proposed rule would also 
require coordination before decisions are made, to foster more 
effective communication with States and Tribes, and to ensure that 
State water rights prerogatives and reserved water rights of Tribes are 
protected. The proposed rule would simplify the process for approving 
access to surplus water by eliminating the need for multiple documents 
(e.g., a real estate easement as well as a separate surplus water 
contract) to provide the approvals for access and withdrawal of surplus 
water, and would enable surplus water uses to continue for a term not 
to exceed the duration of the surplus water determination. Taken 
together, these revised definitions and policies under Section 6 are 
intended to maintain the viability of the Congressionally authorized 
purposes of Corps reservoirs and facilitate access to and use of water 
in those reservoirs by others.
    The Corps also proposes to establish a new methodology for 
determining a ``reasonable'' price for surplus water contracts under 
Section 6. The proposed rule would base the price of surplus water 
contracts on the actual, full, separable costs, if any, that the 
Government would incur in making surplus water available during the 
term of the surplus water agreement, such as by administering and 
monitoring the contract, or by making temporary changes to reservoir 
operations to accommodate the surplus water withdrawals. The Corps 
expects that these costs would be small or non-existent in most cases, 
since surplus water by definition is not needed for federal purposes, 
and typically would not require any operational changes. But to the 
extent that the Government may incur costs in making surplus water 
available, it is reasonable that such costs should be borne by the 
users on whose behalf they are incurred. Depending on the terms or 
complexities of the contract, the costs could be more significant. For 
those surplus water contracts where Federal law provides that no 
charges may be assessed, including the Missouri River mainstem 
reservoirs until June 2024, pursuant to Section 1046(c) of the Water 
Resources

[[Page 91561]]

Reform and Development Act of 2014, Public Law 113-121, 128 Stat. 1193 
(June 10, 2014) (WRRDA 2014), no charges will be assessed. We solicit 
comments on whether the price of surplus water contracts should include 
the economic value of the water supply storage benefit these contracts 
provide (e.g., greater reliability in withdrawing water from a 
reservoir), or reimbursement of indirect costs such as foregone 
hydropower revenue. We solicit comments on these potential alternative 
pricing structures.
    The proposed rule for pricing of surplus water contracts would 
differ from the methodology currently set forth in ER 1105-2-100, which 
indicates that surplus water contracts should include charges 
equivalent to the annual price that a water supply user would pay if 
the Corps had permanently reallocated storage to water supply at that 
project under the WSA. However, when making surplus water available, 
the Corps is not permanently reallocating storage to water supply as it 
would be under the WSA, and the Corps is not choosing to use storage to 
provide surplus water at the expense of Congressionally authorized 
project purposes. Rather, under Section 6, the Corps is authorizing the 
withdrawal, for a limited term on a provisional basis, of water that it 
determines is not needed for authorized purposes. Accordingly, the 
proposed rule would not adopt the annual-cost-of-storage methodology 
presently set forth in ER 1105-2-100 for surplus water contracts. The 
Corps does not anticipate that the new proposed methodology, based on 
the full, separable cost (if any) incurred by the Government, would 
result in significant costs to surplus water users, or revenues or 
benefits foregone by the United States. In practice, the few surplus 
water contracts currently in existence that cite Section 6 (nine 
contracts, as of July 2016) do not fully apply the ER 1105-2-100 
methodology; and by law, the Corps cannot charge any price for surplus 
water uses at the Missouri River mainstem reservoirs for a ten-year 
period ending in 2024.
    The proposed rule would not affect existing contracts or impose any 
charges for Missouri River surplus water withdrawals before 2024. Under 
the proposed rule, the Corps would require formal documentation, 
through a combined easement and contract document, for all users of 
surplus water at a Corps reservoir. Current withdrawals that are 
occurring pursuant to easements only, without water supply agreements, 
will be reassessed when the easements expire, or within five years of 
the effective date of the final rule, whichever is earlier. This will 
ensure that all uses of surplus water at Corps reservoirs, and any 
impacts from such uses on reservoir operations, are formally evaluated; 
and that all withdrawals are documented and authorized, whether under 
Section 6, the WSA, or another authority. The Corps would coordinate 
surplus water determinations in advance with federal PMAs and other 
entities, and would utilize in its determinations any information 
provided regarding impacts to authorized purposes and revenues or 
benefits foregone, to ensure that the water is truly surplus to federal 
requirements. Assuming that it is, then by making such water available 
for withdrawal under Section 6, the Corps would not be foregoing any 
revenues or benefits that Congress expected to be realized from an 
authorized purpose at the project, or any substantial payments from 
future surplus water contracts that are reasonably likely to be 
executed.
    With regard to the WSA specifically, the Corps proposes in this 
rule to formalize its view that the WSA authorizes modifications to 
make water supply a purpose by ``including'' storage for water supply 
at any stage in pre-authorization or post-authorization project 
development, by changing the design plan, physical structure, or 
operation of a reservoir project (or system of projects, if authorized 
as a system). This is consistent with the Corps' longstanding practice 
and interpretation of the WSA since the time it was enacted in 1958, 
and with recent legal opinions of the Corps' Chief Counsel. The 
proposed rule would also formally adopt the legal interpretation set 
forth in those opinions that the statutory limitations on modifications 
under the WSA that would involve ``major structural or operational 
changes,'' or that would ``seriously affect the purposes for which the 
project was authorized, surveyed, planned, or constructed,'' refer to 
actions that would fundamentally depart from Congressional intent, as 
expressed through the authorizing legislation relevant to the project 
or system of projects. Such determinations require both legal analysis 
of the legislation applicable to the project (or system of projects, if 
authorized as a system), and technical assessment of the effects of the 
proposed change on operations of that project or system for its 
authorized purposes, in light of the particular circumstances, and are 
not susceptible to bright-line, numerical or percentage limits 
applicable to all projects. When Congress has authorized Corps 
projects, it has done so by approving reports of the Chief of Engineers 
that set forth the plans of improvement, and the purposes those 
improvements will serve. Those documents, and any other direction that 
Congress provides through legislation, serve to define the authorized 
project purposes. The proposed rule would clarify that the touchstone 
for analysis of whether a proposed modification is ``major'' or 
``serious'' is the extent to which the modification would depart from 
Congressional intent for the structure, operation, and purposes of the 
particular project in question, as expressed in the relevant 
legislation. Although the determination whether to undertake an action 
pursuant to the WSA will ultimately be made by the Department of the 
Army, the proposed rule would expressly require that the basis for such 
determinations be set forth in a written report, which would be 
coordinated with interested Federal, State, and Tribal agencies, with 
public notice and opportunity for comment, prior to a final decision. 
At projects with federal hydropower as an authorized purpose, the 
proposed rule would require the Corps to coordinate any proposal to 
include storage pursuant to the WSA in advance with the PMA that is 
responsible for marketing power from those projects. The Corps would 
utilize in its determinations any information provided by the PMA in 
its evaluation of the impacts of the proposed action.
    The Corps invites comments on the proposed interpretation of the 
statutory limitations on modifications that would ``seriously affect'' 
authorized purposes or involve ``major structural or operational 
changes.'' We also invite comments on whether it may be appropriate to 
adopt in the proposed rule a maximum threshold percentage or amount of 
storage that may be reallocated within the limits stipulated by the 
WSA.
    The proposed rule also would carry forward the current principles 
by which the Corps determines the amount of storage to include for a 
given water supply demand, and allocates a cost to that storage. 
Generally, under the WSA, the Corps includes an amount of storage that 
the Corps believes will be sufficient to yield the gross amount of 
water to be withdrawn or released under projected hydrologic 
conditions. Costs are then allocated to that amount of water supply 
storage in a manner that is reflective of the benefit being afforded--
storage with a dependable yield to meet a projected water supply 
demand--consistent with standard economic evaluation practices for 
federal water resources development projects, and with the requirement 
in the WSA that water supply storage costs

[[Page 91562]]

``be determined on the basis that all authorized purposes served by the 
project shall share equitably in the benefits of multiple purpose 
construction,'' 43 U.S.C. 390b(b). At projects with federal hydropower 
as an authorized purpose, the Corps currently coordinates with federal 
PMAs regarding the delivery of power and the allocation of costs to 
hydropower. The proposed rule would expressly provide that whenever the 
Corps proposes to include storage for water supply under the WSA at 
such projects, the Corps will coordinate that proposal in advance with 
the PMA that is responsible for marketing that federal power. The Corps 
considers this information, including evaluation of hydropower impacts 
and cost information regarding revenues foregone and replacement power 
costs, in determining the cost of storage to be charged to the 
prospective water supply user. The proposed rule would continue and 
formalize these policies and practices, and further the collaboration 
by utilizing the PMA information in the Corps' determinations. The 
proposed rule would not address or affect the rates that PMAs may 
establish for hydroelectric power, nor any credits that might apply to 
the hydropower purpose for revenues foregone and replacement power 
costs, as those determinations are made through separate administrative 
processes.
    Additionally, in response to issues that have arisen over time in 
the Corps' administration of water supply storage agreements, the 
proposed rule would adopt new policies to more clearly indicate how 
much water will be available for a user to withdraw from that storage, 
and the relationship of any ``return flows'' and other inflows to those 
withdrawals. The Corps' WSA storage agreements typically allocate to 
water supply an amount of storage estimated to yield the user's desired 
withdrawal amount during projected hydrologic conditions, including the 
worst drought of record--that is, the dependable yield, or firm yield. 
These agreements entitle the water supply user to make withdrawals from 
the allocated storage, so long as water is available. Because storage 
yields change over time, the amount of water that can be withdrawn from 
storage also changes, and the Corps' storage agreements have not 
generally specified fixed or not-to-exceed withdrawal amounts. Although 
consistent with the principle that under the WSA, the Corps makes 
storage available, and does not sell or guarantee fixed quantities of 
water, these practices have contributed to disputes over the amount of 
water supply use that can be made from Corps reservoirs, especially 
during times of drought and in the context of water rights disputes 
among third parties.
    Moreover, the Corps' past policies and practices have not clearly 
or consistently addressed questions related to ``return flows''--that 
is, water that is withdrawn from and later flows back into a reservoir, 
such as treated wastewater returns--and other ``made inflows'' that may 
be directed into a reservoir by a particular entity in connection with 
water supply withdrawals from the reservoir. The Corps does not have a 
universal policy or practice regarding return flows, but generally has 
not distinguished particular inflows and credited them solely to water 
supply storage allocated to particular uses. Instead, the Corps has 
generally accounted for return flows and other additive inflows in the 
same manner as it accounts for all inflows to a reservoir, that is, as 
water that is available for storage or release for all purposes, 
including but not limited to water supply. In contrast, in some states, 
water rights may be based on net withdrawals, as opposed to gross 
withdrawals, and take into account made inflows. Some entities have 
advocated directly crediting return flows or other made inflows to 
water supply users who provide those flows, arguing that such flows 
increase storage yield, that users may have a right to make withdrawals 
from such flows under state law, or that crediting return such flows 
could create incentives for improved water conservation. Others oppose 
such crediting, on the grounds that it could impinge upon other project 
purposes, or upon other users' rights. Virtually all parties agree that 
more clarity is needed with respect to the amount of water that can be 
withdrawn under water supply storage agreements, and the Corps 
acknowledges these concerns.
    The proposed rule would address issues regarding storage 
allocation, storage accounting, and return flows in several ways. 
First, the proposed rule would require the Corps to more accurately and 
consistently consider return flows or other made inflows when 
determining storage allocations for water supply, and the effects on 
operations for authorized purposes, and on the environment, of 
including such storage for water supply. Thus, to the extent that 
return flows or other made inflows could reasonably be anticipated and 
expected to affect operations, the Corps would take those effects into 
account. Second, the proposed rule would require the Corps to 
incorporate storage accounting in all new WSA storage agreements, to 
make clear to all parties how the availability of water for withdrawal 
from storage, as well as return flows, will be measured. This would 
eliminate uncertainty and reduce the potential for disputes about water 
supply usage over time. Third, the proposed rule would codify the 
Corps' generally prevailing practice of accounting for return flows and 
other made inflows in the same manner as all other inflows, that is, 
establish that, in utilizing storage accounting, the Corps will credit 
return flows proportionally to all storage accounts, rather than 
crediting them fully to the particular entity that might provide the 
inflows, where those inflows have been artificially made and can be 
reliably measured. We would like to solicit public comment on including 
made inflows, and net accounting, in the water supply storage 
agreements and storage accounting.
    Thus, under the proposed rule, both the initial allocation of 
storage to water supply and the accounting of storage usage under a WSA 
storage agreement would be based on the principles that Corps 
reservoirs are operated to serve multiple purposes; that the Corps 
makes storage available, but does not allocate, measure or determine 
any user's water rights under State law; and that storage usage over 
time should remain generally proportional to the share of costs and 
benefits that are allocated among the authorized purposes, consistent 
with Congressional intent. The Corps seeks public input on the proposed 
storage accounting policies.
    The policies that are proposed in this rulemaking are intended to 
clarify, improve, and make more transparent the Corps' implementation 
of Section 6 and the WSA. In pursuing this rulemaking, the Corps hopes 
to invite a thoughtful and positive dialogue with the public. The 
development of water supply policies is a matter of broad national 
interest. As such, the Corps invites and welcomes the public's input on 
the subjects covered in the proposed rule. The Corps looks forward to 
this exchange of views and appreciates the opportunity to develop these 
policies in cooperation with the public.

C. Rationale for Proposed Rule

1. Authority To Use Corps Reservoirs for Water Supply
    The Corps operates its water resource development projects in 
accordance with legislation that Congress has enacted pursuant to 
Article I, Sec.  8, cl. 3 of the U.S. Constitution, ``[t]o regulate 
Commerce with foreign Nations, and among the several States, and with 
the

[[Page 91563]]

Indian Tribes.'' This Constitutional power has long been recognized to 
include the power to regulate navigation and navigable waters. Gibbons 
v. Ogden, 22 U.S. 1, 193, 6 L. Ed. 23 (1824); United States v. 
Appalachian Electric Power Co., 311 U.S. 377, 405 (1940). Unlike other 
federal reservoirs that are operated for different purposes under other 
authority, such as reservoirs operated by the Department of the 
Interior pursuant to the federal reclamation laws, Congress has 
typically authorized the Corps to operate projects, through River and 
Harbors Acts and Flood Control Acts, for nonconsumptive purposes such 
as navigation, flood control, and hydropower generation. The operations 
of Corps projects for those purposes are not expected to interfere with 
the prerogatives of the States to allocate waters within their borders 
for consumptive use. Indeed, Congress has expressed its intent, in 
several legislative provisions of general application, ``to recognize . 
. . the interests and rights of the States in determining the 
development of the watersheds within their borders and likewise their 
interests and rights in water utilization and control.'' Flood Control 
Act of 1944, Public Law 78-534, 1, 58 Stat. 888 (Dec. 22, 1944), 33 
U.S.C. 701-1. In addition, Congress has recognized and expressly 
enacted into law the expectation that the Corps will adjust the 
operation of its water resource development projects for federally 
authorized purposes, to the maximum extent practicable, to effectuate 
water allocation formulas developed through interstate Compacts.\5\
---------------------------------------------------------------------------

    \5\ See, e.g., WRRDA 2014, Sec.  1051(b)(1) (finding that 
``States and local interests have primary responsibility for 
developing water supplies for domestic, municipal, industrial, and 
other purposes,'' and expressing the sense of Congress that the 
Secretary of the Army ``should adopt policies and implement 
procedures for the operation of reservoirs of the Corps of Engineers 
that are consistent with interstate water agreements and 
compacts.''). See also Apalachicola-Chattahoochee-Flint River Basin 
Compact, Public Law 105-104, arts. VII, X, 111 Stat. 2219 (Nov. 20, 
1997) (recording intent of the United States to comply with water 
allocation formula to be worked out among the States of the 
Apalachicola-Chattahoochee-Flint River Basin, and to exercise 
authorities in a manner consistent with that formula, to the extent 
not in conflict with federal law); WRRDA 2014, Sec.  1051(a), 
codified at 43 U.S.C. 390b(f) (expressing sense of Congressional 
Committees of jurisdiction that interstate water disputes should be 
resolved ``through interstate water agreements that take into 
consideration the concerns of all affected States including impacts 
to other authorized uses of the [federal] projects,'' and pledging 
Committees' ``commitment to work with the affected States to ensure 
prompt consideration and approval of'' possible new Apalachicola-
Chattahoochee-Flint and Alabama-Coosa-Tallapoosa River System 
compacts).
---------------------------------------------------------------------------

    In accordance with this Congressional intent, the Corps endeavors 
to operate its projects for their authorized purposes in a manner that 
does not interfere with the States' abilities to allocate consumptive 
water rights, or with lawful uses pursuant to State, Federal, or Tribal 
authorities. The Corps develops water control plans and manuals through 
a public process, affording all interested parties the opportunity to 
present information regarding uses that may be affected by Corps 
operations, and the Corps takes that information into account in 
determining operations for authorized purposes of its projects. See 33 
U.S.C. 709 (statute directing the Secretary of the Army to prescribe 
regulations for the use of storage for flood control or navigation at 
certain reservoirs); 33 CFR 222.5; ER 1110-2-240 (policies and 
procedures for establishment and updating water control plans for Corps 
and non-Corps projects). Because purposes such as flood control, 
navigation, and hydropower at Corps reservoirs are carried out pursuant 
to the Commerce power, and are non-consumptive in nature, the Corps 
does not secure water rights for those operations.
    Section 6 and the WSA also do not involve consumptive uses by the 
Corps. Rather, Section 6 and the WSA authorize the Corps to make its 
reservoirs available for water supply use by others. Congress did not 
intend for the Corps to secure water rights under those authorities, or 
to interfere with State, Federal, or Tribal allocations of water when 
exercising its discretion under Section 6 or the WSA. Section 6 
provides that ``no contracts for [the use of surplus] water shall 
adversely affect then existing lawful uses of such water,'' 33 U.S.C. 
708, and the WSA expressly ``recognize[s] the primary responsibility of 
the States and local interests in developing water supplies,'' while 
reaffirming the general statement of intent to recognize the interests 
and rights of States in the development of waters, expressed in 33 
U.S.C. 701-1. 43 U.S.C. 390b(a), (e).
    Thus, when exercising its authority under Section 6 or the WSA, the 
Corps does not determine how water supply needs should be satisfied 
within a region, allocate water rights, or sell water. Nor does the 
Corps take on the role of a water distributer, treating or actually 
delivering water to end users. Instead, the Corps facilitates the 
exercise of water rights held by others, and the efforts of States and 
local interests to develop their own water supplies through nonfederal 
conveyance systems, in connection with the operation of Corps reservoir 
projects. Under Section 6, the Corps enters into contracts with non-
federal entities for the withdrawal of ``surplus water,'' for so long 
as it has been determined to be available at a Corps reservoir. Such 
contracts reflect the Corps' determination that the withdrawal of the 
surplus water will not interfere with any then existing lawful use of 
the water during the term of the contract. Under the WSA, the Corps has 
broader discretion to construct additional storage at a reservoir, or 
to change reservoir operations to allow additional uses of existing 
storage, in order to facilitate water supply withdrawals or releases 
from reservoir storage. The Corps does not construct or operate water 
supply treatment or delivery systems under the WSA. Under either 
statute, it remains the sole responsibility of the water supply users 
to construct works for the withdrawal, treatment, and/or distribution 
of water from a Corps reservoir, and to obtain whatever water rights 
may be necessary towards that end. The Corps' authorities under both 
Section 6 and the WSA relate to the use of the Corps reservoir facility 
as a source of that water.
2. Section 6 of the Flood Control Act of 1944, 33 U.S.C. 708 (Section 
6)

    Section 6, as codified at 33 U.S.C. 708, provides as follows:

    The Secretary of the Army is authorized to make contracts with 
States, municipalities, private concerns, or individuals, at such 
prices and on such terms as he may deem reasonable, for domestic and 
industrial uses for surplus water that may be available at any 
reservoir under the control of the Department of the Army: Provided, 
That no contracts for such water shall adversely affect then 
existing lawful uses of such water. All moneys received from such 
contracts shall be deposited in the Treasury of the United States as 
miscellaneous receipts.

    Congress's intent in enacting Section 6 was to provide a means of 
enabling water to be withdrawn from a Corps reservoir so that it may be 
put to beneficial use by those who hold the rights to the use of that 
water, when that use would not interfere with the authorized purposes 
of the Corps project. In deliberations regarding the 1944 Flood Control 
Act, Congress recognized that Corps reservoirs, when operated to store 
waters for non-consumptive authorized purposes such as flood control, 
navigation, or hydropower generation, may at times contain water not 
needed in order to accomplish those purposes. Congress intended to give 
authority to the Secretary of the Army to facilitate uses of that 
``surplus water'' by others,

[[Page 91564]]

pursuant to water rights they held or would separately obtain.\6\ Under 
applicable law at that time, 33 U.S.C. 701h, the Secretary of War was 
only authorized ``to provide additional storage capacity for domestic 
water supply or other conservation storage'' by modifying the ``plans'' 
for a Corps reservoir--i.e., by identifying water supply needs prior to 
construction--and only if local agencies contributed funds to pay for 
the cost of ``such increased storage capacity.'' \7\ That authority 
does not authorize the Corps to meet water supply needs from its 
reservoirs unless additional storage capacity has been added at non-
federal expense, and in 1944, Congress recognized that it was not 
practical for many communities to contribute funds in advance of 
construction, and that there would be water supply needs that would 
develop only after construction. See H.R. Rep. 78-1309 at 7 (Mar. 29, 
1944) (noting that ``small communities have experienced difficulty in 
providing the large lump-sum contributions prior to construction 
required by existing law,'' or have requested water supply storage only 
``after a dam reservoir project has been completed''). Congress 
responded to these concerns in 1944, not by authorizing the 
construction of additional storage capacity in an existing reservoir, 
but rather, by authorizing the Corps to make water in its reservoirs 
available for withdrawal, when that could be done without interfering 
with authorized purposes (i.e., if the water is ``surplus'' to those 
purposes), for existing, lawful uses of the water, ``at such prices and 
on such terms as [the Secretary] may deem reasonable.''
---------------------------------------------------------------------------

    \6\ See 90 Cong. Rec. 8548 (Nov. 29, 1944) (statement of Sen. 
O'Mahoney that ``if [Corps reservoirs] store surplus waters, such 
waters should be made available for any purpose, domestic irrigation 
or otherwise, which residents in the neighborhood or in the vicinity 
affected may desire'').
    \7\ War Department Civil Appropriations Act of 1938, ch. 511, 50 
Stat. 518 Sec.  1 (July 19, 1937), codified at 33 U.S.C. 701h 
(authorizing the Secretary of the Army to modify the plans for any 
Corps reservoir to include additional storage capacity for water 
supply, but only ``on condition that the cost of such increased 
storage capacity is contributed by local agencies and that the local 
agencies agree to utilize such additional storage capacity in a 
manner consistent with Federal uses and purposes.'').
---------------------------------------------------------------------------

    The authority conferred under Section 6 does not involve the sale 
of water, nor the issuance of water rights.\8\ To the contrary, the 
language of Section 6 was carefully crafted to respond to concerns of 
representatives of western States and others that by contemplating that 
the Corps would ``sell water,'' the proposed legislation could impair 
water rights granted under state law, interfere with the prerogatives 
of the States to exercise control over water resources within their 
boundaries, or undermine the principles of the federal reclamation 
laws, as implemented by the Department of the Interior.\9\ Earlier 
drafts of Section 6 did include the phrase ``sale of [surplus] water,'' 
but this language was changed after it was pointed out that the Army, 
in the operation of its projects--in contrast to the Department of the 
Interior, in the operation of its projects pursuant to federal 
reclamation laws--does not take title to the water itself, and ``does 
not engage in the business of selling stored water.'' \10\ Accordingly, 
the text of the draft Section 6 was modified to authorize the Secretary 
of the Army to dispose of surplus water by entering into ``contracts'' 
for its use, rather than by ``selling'' the water itself.\11\
---------------------------------------------------------------------------

    \8\ The heading of 33 U.S.C. 708 reads ``Sale of surplus waters 
for domestic and industrial uses; disposition of moneys.'' However, 
the phrase ``sale of surplus waters'' does not appear in the text of 
Section 6. Compare S. Rep. No. 82-1348, Reviving and Reenacting 
Section 6 of the Flood Control Act, Approved December 22, 1944 at 1 
(Mar. 24, 1952) (``The bill would revive legislation concerning the 
disposal of surplus water from dams constructed by the Corps of 
Engineers.'') (emphasis added).
    \9\ Id. at 1-2 (``Section 6 was carefully developed by Congress 
in 1944 in order to provide a means of permitting the disposal of 
surplus water for domestic and industrial uses with the specific 
limitation that no contracts for such water shall adversely affect 
then existing lawful uses of water. This language met with the 
approval of groups in the West where water rights and the 
conservation and use of water is of the greatest importance. All of 
those who are interested in this matter have requested prompt 
restoration of the original legislation.'').
    \10\ See 90 Cong. Rec. 4126 (May 8, 1944); 90 Cong. Rec. 8231 
(Nov. 21, 1944) (statements of Sens. Overton, White, and Milliken).
    \11\ See S. Rep. No. 82-1348 at 1-2 (Mar. 24, 1952) (noting that 
Section 6 was inadvertently repealed along with obsolete Government 
property laws, ``apparently upon the understanding that [Section 6] 
dealt with a matter of surplus property of the Corps of Engineers,'' 
and that ``[s]ubsequently, information has come to the attention of 
the Congress that [S]ection 6 is not a matter of surplus property of 
the Corps of Engineers since the Corps of Engineers has no title to 
the surplus water which may be impounded by these dams.'').
---------------------------------------------------------------------------

    Recognizing that the Corps does not own or obtain consumptive use 
rights for the water it impounds for Commerce Clause purposes in its 
reservoirs, Congress included language in Section 6 to ensure that ``no 
contracts for such water shall adversely affect then existing lawful 
uses of such water,'' 33 U.S.C. 708. This protected the existing lawful 
uses of that water, and also recognized ``the interests and rights of 
the States in determining the development of the watersheds within 
their borders and likewise their interests and rights in water 
utilization and control.'' Flood Control Act of 1944, Sec.  1, 33 
U.S.C. 701-1; see also 90 Cong. Rec. 8231 (Nov. 21, 1944) (statement of 
Sen. Overton that the proposed Section 6 ``protects the existing lawful 
uses of the water''). Congress also understood that the Corps exercises 
operational control over its reservoirs, and therefore must give 
approval for water supply withdrawals from those reservoirs, by persons 
with lawful rights to the use of the water. The purpose of Section 6 
was to give the Secretary of the Army that authority to issue such 
approvals. See 90 Cong. Rec. 8231 (Nov. 21, 1944) (statement of Sen. 
Overton that ``when a dam is constructed and water is impounded in it 
and there is nearby a lawful user of that water, we do not want to 
deprive him of his rights. Therefore, he is permitted to take water 
from the dam, but of course, he does it under the direction of the 
Secretary of War.''). Thus, in enacting Section 6, Congress provided a 
new authority to the Secretary of the Army to enable individuals or 
entities to access water to which they hold the lawful water rights, 
when that water is available at an existing Corps reservoir and could 
be withdrawn without interfering with the authorized federal purposes 
of that reservoir, with then existing lawful uses, or with the federal 
reclamation laws.
    In summary, Section 6 authorizes the Secretary of the Army to enter 
into contracts for the use of surplus water, when it may be available 
at a Corps reservoir, without requiring that users pay in advance of 
construction for the cost of including storage in the reservoir. It 
does not authorize the Corps to ``sell water,'' or to interfere with 
lawful uses of water, or to construct systems for the delivery of 
irrigation water that would impinge upon the authority of the Secretary 
of the Interior under the Reclamation laws. In enacting Section 6, 
Congress did not define the statutory terms ``surplus water,'' 
``reservoir,'' or ``domestic and industrial uses,'' and the proposed 
rule provides the Corps' interpretations of those terms. The proposed 
rule also gives meaning to the phrase ``then existing lawful uses'' and 
set forth a proposed methodology for determining ``reasonable'' pricing 
and other contract terms, as provided in Section 6.
a) Definition of ``Surplus Water''
    The Corps' interpretation of the statutory term ``surplus water'' 
has evolved over time. Prior to 1986, internal Corps guidance 
recognized that Section 6 provides an independent source of authority 
for contracts for the use of surplus water. However, that

[[Page 91565]]

guidance did not define the term ``surplus water,'' or distinguish that 
authority substantially from the WSA. In practice, the clear preference 
in policy and in practice was to utilize the latter authority, and not 
Section 6, to accommodate requests for municipal and industrial water 
supply from Corps reservoirs. In 1986, the General Counsel of the 
Department of the Army issued a legal opinion analyzing the statutory 
text and legislative history of Section 6, and concluded that Congress 
intended to confer broad discretion to make surplus water available to 
individual users, even if that water might otherwise be used for 
authorized purposes, so long as surplus water withdrawals would not 
impair the efficiency of the project for its authorized purposes. 
Citing the Congressional debates on Section 6, the Army General Counsel 
concluded that Congress intended to confer upon the Secretary of the 
Army a degree of discretion comparable to that of the Secretary of the 
Interior under certain provisions of Reclamation law to make water 
available at a reservoir when doing so ``will not impair the efficiency 
of the project'' for its authorized purposes. Susan Crawford, General 
Counsel, Department of the Army, Memorandum for the Assistant Secretary 
of the Army (Civil Works), Subject: Proposed Contracts for Municipal 
and Industrial Water Withdrawals from Main Stem Missouri Reservoirs 4 
(Mar. 13, 1986) (1986 Army General Counsel Legal Opinion) (citing 43 
U.S.C. 485h(c)); see also ETSI Pipeline Project v. Missouri et al., 484 
U.S. 495, 506 & n.3 (1988) (citing and commenting favorably on Army 
General Counsel interpretation of ``surplus water'' under Section 6).
    Since the late 1980s, the Corps has interpreted the term ``surplus 
water'' to mean, for purposes of Section 6:

    (1) water stored in a Department of the Army reservoir that is 
not required because the authorized use for the water never 
developed or the need was reduced by changes that occurred since 
authorization or construction; or
    (2) water that would be more beneficially used as municipal and 
industrial water than for the authorized purpose and which, when 
withdrawn, would not significantly affect authorized purposes over 
some specified time period.

ER 1105-2-100 at E-214.

    This definition is derived from the 1986 Army General Counsel Legal 
Opinion, which was quoted favorably by the Supreme Court in its ETSI 
Pipeline Project decision, and we believe it is fundamentally sound. It 
reflects the fact that Congress has entrusted the Secretary of the Army 
with the authority to ``control'' Corps reservoirs, as well as the 
discretion to approve withdrawals from them, in consideration of the 
reservoirs' operation for federal purposes. See ETSI Pipeline Project, 
484 U.S. at 505-06 (citing Flood Control Act of 1944, Sec. Sec.  4-6, 
8). However, the wording in the Corps' guidance contains certain terms 
that may unintentionally cause confusion, and that are not essential to 
the concept of ``surplus water.'' The Corps' current definition refers 
to ``stored'' water, which some have claimed is distinguishable from 
water that would have been available from the natural flow of the river 
prior to construction of the Corps dam (see discussion on relationship 
between ``natural flows'' and ``surplus water,'' below). This in turn 
has led to criticism of the Corps' proposals in the past to impose a 
fee for surplus water agreements that is based on the cost of reservoir 
storage, when surplus water withdrawals may not depend upon storage 
above and beyond the natural flow. In response to these pricing 
concerns, the Corps proposes to change the pricing methodology under 
Section 6 to avoid charging surplus water users for storage costs of 
Corps reservoirs (see the discussion of Section 6 pricing, below).
    With regard to the definition of ``surplus water'' under Section 6, 
the Corps acknowledges that nothing in the text of Section 6 expressly 
refers to ``storage'' or ``stored water.'' The Corps also recognizes 
that some withdrawals that it may authorize from a Corps reservoir 
pursuant to Section 6 could have been made from the river in the 
absence of the Corps reservoir project, and in that sense may not be 
dependent on reservoir storage. The absence of the term ``storage'' in 
Section 6 is a significant distinction from the WSA, which expressly 
authorizes the Corps to include storage for water supply (on the 
condition that water supply users agree to pay for the cost of 
including storage in the reservoir). Instead, Section 6 refers only to 
``surplus water that may be available at any [Corps] reservoir.''
    We believe that Congress intended, in enacting Section 6, that the 
Corps would authorize withdrawals for domestic or industrial uses of 
any amounts of water, if such withdrawals could be made in accordance 
with the terms of Section 6. Congress expected that the Corps would use 
this authority to authorize withdrawals, consistent with state 
allocations of water for beneficial uses, by persons or entities that 
had not previously agreed to pay for storage in a Corps reservoir (as 
required under applicable law, 33 U.S.C. 701h, that preceded enactment 
of Section 6). We believe that narrowly interpreting the term ``surplus 
water'' to enable the Corps to authorize only those withdrawals from 
its reservoirs that may be determined to utilize storage, as opposed to 
those withdrawals that could potentially have been accommodated from 
the natural flow of the river had the reservoir never been constructed, 
would frustrate Congress's intent that the Corps should make surplus 
water available when doing so would not impair operations for 
authorized purposes or interfere with then existing lawful uses 
including the CWA, the ESA, and other federal statutes. Thus, we 
believe the appropriate inquiry under Section 6 is whether the amount 
of water to be withdrawn is ``available at'' a Corps reservoir, and 
whether that water is not needed in order to accomplish an authorized 
purpose of the reservoir. In considering whether water is ``needed'' 
for a purpose, the touchstone for analysis depends in each case upon 
the specific legislation by which Congress authorized the project in 
question, and the Congressional expectations, with regard to the 
purposes set forth in the documents that Congress incorporated or 
approved in the authorizing legislation. Under the proposed rule, if 
the amount of water considered as ``surplus water'' could be withdrawn 
without impairing operations for authorized purposes--that is, if the 
water is not needed in order to accomplish the authorized purposes, 
consistent with Congressional expectations set forth in the authorizing 
legislation--then the water may be considered ``surplus water,'' and 
the Corps is authorized to exercise its discretion under Section 6 to 
approve the withdrawal of that water for domestic and industrial use.
    Additionally, the phrase ``more beneficially used'' in the 
definition contained in the current Corps guidance is also unnecessary, 
and may contribute to misunderstandings about the Corps' surplus water 
authority. When exercising its authority under Section 6, the Corps 
does not make judgments about beneficial uses of water, as that is a 
prerogative of the States. (The proposed rule recognizes this, and 
would more clearly provide for coordination of surplus water 
determinations with other federal agencies, States, Tribes, and the 
public, to respect their prerogatives and to ensure that proposed 
surplus water withdrawals will not interfere with any then existing 
lawful uses.) The phrase ``more beneficially used'' in the existing

[[Page 91566]]

guidance was intended to mean that the Corps may exercise its judgment 
when determining whether water is needed in order to accomplish an 
authorized federal purpose, and, if not, whether it should be made 
available for domestic and industrial use as ``surplus water'' within 
the meaning of Section 6. It was not intended to suggest that the Corps 
would determine the relative priority that should be assigned to 
individuals' requests for surplus water for different beneficial uses.
    The Corps proposes to offer a new definition of ``surplus water'' 
in order to correct these potential misunderstandings, to more clearly 
distinguish uses of surplus water under Section 6 from the inclusion of 
storage under the WSA, and to reaffirm the Corps' intention not to 
interfere with State, Tribal, or other federal reserved water rights 
when it provides for surplus water uses by others. The proposed rule 
would define ``surplus water'' to mean water, available at any Corps 
reservoir, that is not required during a specified time period to 
accomplish an authorized purpose or purposes of that reservoir, for any 
of the following reasons--
    (i) because the authorized purpose or purposes for which such water 
was originally intended have not fully developed; or
    (ii) because the need for water to accomplish such authorized 
purpose or purposes has lessened; or
    (iii) because the amount of water to be withdrawn, in combination 
with any other such withdrawals during the specified time period, would 
have virtually no effect on operations for authorized purposes.
    This proposed definition would focus more closely on the precise 
language of Section 6, beginning with the term ``surplus'' itself. 
Defining ``surplus water'' to mean water that is not required in order 
to accomplish an authorized purpose is a reasonable construction of the 
statutory language, in light of its ordinary meaning as well as the 
legislative history that indicates Congressional intent. The term 
``surplus'' has a common meaning of ``the amount that remains when use 
or need is satisfied.'' Merriam-Webster Online Dictionary (2013), 
available at http://www.merriam-webster.com/dictionary/surplus. The 
U.S. Supreme Court found the meaning of ``surplus water'' in Section 6 
``plain enough'' on its face, i.e., referring to ``all water that can 
be made available from the reservoir without adversely affecting other 
lawful uses of the water.'' ETSI Pipeline Project, 484 U.S. at 506 & 
n.3. Under that reasoning, even though certain water might currently be 
used to benefit other authorized purposes--e.g., increased recreational 
opportunities or greater hydroelectric generation--if it is not needed 
in order to accomplish those purposes, it may reasonably be considered 
``surplus'' within the meaning of Section 6. The proposed definition of 
``surplus water'' recognizes that water might not be needed under 
several different circumstances. As previously mentioned, the Corps 
would like to solicit comment on whether there could be a minimum or de 
minimis threshold amount of water that could be removed from a 
reservoir and defined as having virtually no effect on reservoir 
operations, i.e., surplus water.
    Water may be available because a Corps reservoir was intended to 
serve a purpose that has not yet fully developed; in the meantime, 
water is not needed for that purpose. Similarly, if the need for water 
to accomplish an authorized purpose or purposes decreases over time, 
water might be available for withdrawal without impairing any 
authorized purpose. Under these circumstances, while the water may not 
be needed in order to accomplish authorized purposes, it is conceivable 
that water has been used to provide additional benefits for authorized 
purposes, and making the water available for domestic and industrial 
use could result in certain reductions in benefits (including revenues 
or benefits foregone) or for other authorized purposes. But so long as 
the water is not needed in order to accomplish the authorized purposes, 
consistent with Congressional expectations set forth in the authorizing 
legislation, the water may still be considered ``surplus water.'' See 
1986 Army General Counsel Opinion. And as the U.S. Supreme Court noted 
in ETSI Pipeline Project v. Missouri, ``[t]his view is consistent with 
the language of the Act, for if the term `surplus water' could never 
include any of the water stored in the reservoirs themselves, then the 
caveat Congress enacted in Sec.  6--that this grant of authority shall 
not `adversely affect then existing lawful uses of such water'--would 
have been irrelevant because this grant of authority could never 
adversely affect any existing or projected uses of such water.'' \12\
---------------------------------------------------------------------------

    \12\ ETSI Pipeline Project v. Missouri et al., 484 U.S. 495, 506 
n.3 (1988). As noted, the proposed rule would include provisions for 
coordination with federal Power Marketing Administrations when 
determining surplus water and evaluating impacts to the authorized 
hydropower purpose.
---------------------------------------------------------------------------

    In other circumstances, the amount of withdrawals for domestic or 
industrial use that are proposed might be so small, both individually 
and collectively, that the withdrawals would have virtually no effect 
on any authorized purpose; in that sense too, the water would not be 
``needed'' for an authorized purpose, and could be considered 
``surplus.'' In any of these examples, the withdrawal of the water for 
domestic or industrial use would not impair the efficiency of the 
project for its authorized purposes, nor would the grant of provisional 
authority to withdraw the water require a permanent reallocation of 
storage, as under the WSA.\13\ If, on the other hand, water proposed to 
be withdrawn under Section 6 is determined to be needed for an 
authorized federal purpose, such as hydropower generation, or releases 
to comply with downstream flow requirements that may be necessary to 
comply with federal law such as the CWA or ESA, the water would not be 
``surplus'' within the meaning of Section 6. The proposed rule would 
require that surplus water determinations specify the time period in 
which an amount of surplus water has been determined to be available, 
taking into account the requirements of authorized project purposes. 
The Corps solicits comments on monitoring procedures that the Corps 
might implement to assess whether withdrawals under a surplus water 
contract either cause an exceedance of the amount of water determined 
to be surplus or utilize reservoir storage that is allocated to another 
active purpose.
---------------------------------------------------------------------------

    \13\ The Corps' authority under Section 6 to determine whether 
water is not needed for an authorized purpose and is therefore 
``surplus water'' within the meaning of Section 6 is also consistent 
with Congress's longstanding recognition that the Corps has inherent 
discretion to determine how its projects should be operated for 
their authorized purposes, and to make certain adjustments in the 
operation of projects over time, provided that the Corps does not 
add or delete authorized purposes, or change any other requirements 
imposed by law. See Environmental Defense Fund v. Alexander, 467 F. 
Supp. 885, 900-01 (D. Miss. 1979) (citing Report on the Civil 
Functions Program of the Corps of Engineers, United States Army, 82d 
Cong., 2d Sess. 1 (1952)).
---------------------------------------------------------------------------

    In addition, the newly proposed definition of ``surplus water'' 
would clarify the Corps' authority to accommodate certain categories of 
withdrawals by non-federal parties that the Corps has previously 
allowed under other authorities, or has simply facilitated without 
citing any specific authority. A 2012 review of withdrawals from Corps 
reservoirs suggested that many water withdrawals are occurring without 
a formal water supply agreement, clear statement of authority for the 
withdrawals, or reimbursement to the Treasury for costs incurred by the 
Government in accommodating those uses. In the past, the Corps 
sometimes accommodated such uses under

[[Page 91567]]

authorities such as the Independent Offices Appropriations Act (IOAA), 
charging an amount that was considered appropriate to offset the 
federal cost in providing the water service. ER 1165-2-105, Change 10 
(February 18, 1972). That practice ended after a 1986 Army General 
Counsel opinion called into question whether the IOAA was truly 
intended to serve as a water marketing statute. Susan Crawford, General 
Counsel, Department of the Army, Memorandum for the Assistant Secretary 
of the Army (Civil Works), Subject: Proposal to Withdraw Water from 
Dworshak Dam for Use by the City of Orofino (23 May 1986); ER 1105-2-
100 at 3-34, ] 3-8.b(7); E-212, ] E-56(d). In other cases, the Corps 
simply granted easements to water users to make withdrawals from Corps 
reservoirs, without requiring a separate water supply agreement or 
charging any fee in connection with the water supply use. See ER 1165-
2-105 (September 18, 1961); (ER) 1165-2-119 at ] 8.d (Sept. 20, 1982); 
and Major General William F. Cassidy, Assistant Chief of Engineers for 
Civil Works, to Major General Frank M. Albrecht, U.S. Army Engineer 
Division, South Atlantic, Dec. 29, 1959 (opining that it was not 
practical at that time to enter into contractual agreements for small 
withdrawals, but recognizing that over time, such withdrawals could 
aggregate and ``get out of hand''). In 2008, the Corps updated its real 
estate policies to clarify that easements supporting water supply 
agreements should not be issued before a water supply agreement has 
been executed; but that guidance did not determine the circumstances in 
which a water supply agreement is required, or what specific authority 
would apply to a particular withdrawal. To the extent that water may be 
withdrawn from a Corps reservoir without affecting operations for 
authorized purposes, for any of the reasons set forth in the proposed 
definition, Section 6 provides an appropriate authority for the Corps 
---------------------------------------------------------------------------
to approve the withdrawal.

    Finally, the proposed definition of surplus water would omit the 
phrase ``water that would be more beneficially used as municipal and 
industrial water than for [another] authorized purpose,'' which 
appears in the existing ER 1105-2-100 definition of ``surplus 
water.'' The Corps does not determine beneficial uses; such 
determinations are made through water rights allocation systems, and 
the Corps operates its reservoirs for federal purposes in a manner 
that does not interfere with beneficial uses of water under those 
systems. Nor does the Corps trade off authorized federal purposes 
against beneficial uses when it makes surplus water available under 
Section 6: Instead, the determination that water is ``surplus'' 
rests on the premise that the water can be withdrawn for beneficial 
use without interfering with the accomplishment of the authorized 
federal purposes of the reservoir and applicable federal laws such 
as the CWA and ESA. The proposed rule would recognize that surplus 
water determinations require both technical and legal analysis of 
the circumstances and project authorization. The proposed rule would 
require that before making surplus water determinations, the Corps 
will coordinate with States, Tribes, and federal agencies, and will 
provide notice and opportunity for public comment. At projects with 
a hydropower purpose, under the proposed rule, the Corps would 
coordinate surplus water determinations in advance with the 
applicable Federal PMA, and utilize in its determinations any 
information that the PMA provides regarding potential impacts to the 
federal hydropower purpose, including revenues and benefits 
foregone. To the extent that water is determined to be required for 
a federal purpose, it would not be considered ``surplus'' under the 
proposed rule.
(1) Alternative Definition of ``Surplus Water'' Excluding ``Natural 
Flows'' (Missouri River Basin Views)
    In response to proposed Corps actions in the Missouri River basin, 
representatives of a number of States have expressed their views that 
the ``natural flows'' (i.e., waters which would have been available 
even without the Corps' reservoirs) of the Missouri River remain 
subject to the States' authority to allocate for beneficial use; that 
the Corps should not deny access to such ``natural flows'' within Corps 
reservoirs; and that the Corps should not charge storage fees to users 
who are making withdrawals of ``natural flows.'' See U.S. Army Corps of 
Engineers, Omaha District, Final Garrison Dam/Lake Sakakawea Project, 
North Dakota, Surplus Water Report, Vol. 2, App. B (March 2011) 
(finalized July 13, 2012), available at http://cdm16021.contentdm.oclc.org/cdm/ref/collection/p16021coll7/id/37. 
(comments submitted by representatives of Montana, North Dakota, and 
South Dakota); see also Letter from the Western States Water Council to 
the Assistant Secretary of the Army (Civil Works) (August 6, 2013) (on 
file). These stakeholders have advocated that the Corps should adopt a 
policy that distinguishes between ``stored water'' and ``storage 
capacity'' and ensures that the ``natural flows'' are not considered to 
be stored water. Accordingly, these stakeholders believe that the 
Corps' definition of ``surplus water'' should be limited to waters that 
are stored in a Corps reservoir, and should exclude the natural flows 
that would be available absent the reservoir. They believe that 
citizens of the Missouri River basin States should have unlimited 
access to the ``natural flows'' of the Missouri River, and not be 
required to enter into a water supply contract or charged a fee for the 
water allocated from the ``natural flows.'' They cite to state and 
federal law in support of the alternative definition, including their 
State constitutions and Section 1 of the 1944 Flood Control Act. See 
generally The Law of the Missouri, 30 S.D. L. Rev. 346 (1984-1985).
    Although the Corps has considered these views, it is not convinced 
that the alternative definition suggested by upper-basin stakeholders 
is the most supportable reading of the 1944 Flood Control Act and its 
pertinent amendments. Rather, the Corps is proposing clarifications and 
changes to the agency's interpretation of the statutory term ``surplus 
water'' and the pricing methodology for contracts under Section 6 
(discussed below). The Corps acknowledges that the allocation of waters 
for beneficial use is a prerogative of the States, and the Corps may 
not deviate from Congressional direction--in its existing practice, or 
under the proposed rule--by interfering with beneficial uses authorized 
by the States when it makes contracts for surplus water uses from Corps 
reservoirs. Section 6 refers to water that is ``available at'' a Corps 
reservoir, and does not distinguish between flows that would exist with 
or without the reservoir. Accordingly, the Corps' proposed definition 
of ``surplus water'' would no longer refer to ``stored'' water, and the 
Corps' pricing methodology under Section 6 would no longer include 
charges associated with the cost of providing or maintaining reservoir 
storage. Under the proposed rule, as long as surplus water is available 
at a Corps reservoir, and its withdrawal would not interfere with any 
then-existing beneficial use (including water uses determined under 
state law), the Corps may authorize its withdrawal under Section 6, and 
will not require the user to enter into a separate water supply 
agreement or pay for reservoir storage costs. Instead, under the 
proposed rule, the Section 6 authorization would be incorporated into 
the real estate easement that is already required, and there would be 
no additional cost for surplus water storage (see section I.C.2(e), 
below).
    As further discussed below, the Corps believes that its 
implementation of Section 6 under the proposed rule would enable the 
Corps to more easily authorize uses of surplus water where it is 
available, without interfering with state prerogatives to determine 
beneficial uses, and without requiring

[[Page 91568]]

users to pay for storage costs if they do not need or desire reservoir 
storage. Additionally, the proposed changes are intended to clearly 
distinguish the Corps' accommodation of surplus water uses under 
Section 6 from the Corps' inclusion of storage for water supply uses 
under the WSA. For those reasons, the Corps believes that its proposed 
definitions and policies under Section 6 are consistent with the 
statutory text and Congressional intent behind Section 6.
    The Corps specifically invites all interested parties to comment on 
the proposed definition of ``surplus water,'' as well as an alternative 
definition of ``surplus water'' that would exclude the ``natural 
flows'' from stored water in the Missouri River mainstem reservoirs 
thereby precluding the ``natural flows'' from being considered surplus 
waters for purposes of Section 6.
b) Definition of ``Reservoir'' Under Section 6
    Section 6 applies to ``any reservoir under the control of the 
Department of the Army.'' In Section 6, Congress did not specifically 
define the term ``reservoir,'' but was evidently concerned with Corps 
impoundments of water that might be made available to States, 
municipalities, private concerns, or individuals for domestic and 
industrial use, a concept that is consistent with common understandings 
of the term ``reservoir''--e.g., ``a usually artificial lake that is 
used to store a large supply of water for use in people's homes, in 
businesses, etc.'' \14\ Thus, the Corps interprets the term 
``reservoir'' in Section 6 broadly to include any facility, under the 
operational control of the Corps, that impounds water and is capable of 
being operated for multiple purposes and objectives. Any other Corps 
water resource development facility that does not impound water, or 
that may not be operated for multiple purposes and objectives, could 
not reasonably be expected to serve as a source of water supply for 
others, and therefore would not be included within the proposed 
definition of ``reservoir'' under Section 6. A similar definition has 
been proposed for projects subject to the WSA.
---------------------------------------------------------------------------

    \14\ See http://www.merriam-webster.com/dictionary/reservoir.
---------------------------------------------------------------------------

c) Definition of ``Domestic and Industrial Uses'' under Section 6
    As discussed above, Congress deliberately employed the phrase 
``make contracts . . . for domestic and industrial uses for surplus 
water'' in Section 6 in place of other language that could have 
suggested that the Corps owned, and was literally selling, the water in 
its reservoirs. Congress did not define the phrase ``domestic and 
industrial uses.'' However, the structure of the Flood Control Act of 
1944 (including comparison of Sections 6 and 8), and the legislative 
history, support the conclusion that the phrase was intended to 
distinguish beneficial uses that could be accommodated by the Secretary 
of the Army under Section 6 from ``irrigation purposes'' that could be 
accommodated under the Reclamation laws, through a different process 
involving the Secretary of the Interior and Congress, under Section 8. 
In enacting Section 6, the Senate considered and ultimately settled on 
the phrase ``make contracts . . . for domestic and industrial uses for 
surplus water'' in order to clarify that the authorization to the 
Secretary of Army to make contracts for surplus water uses would 
neither modify the federal reclamation laws, including the repayment 
provisions under those laws, nor interfere with the authority of the 
Secretary of the Interior under the federal reclamation laws.\15\ 
Section 6 was enacted at the same time as Section 8 of the Flood 
Control Act of 1944, which authorizes the Secretary of the Interior to 
``construct, operate, and maintain, under the provisions of the Federal 
reclamation laws,'' ``additional works . . . for irrigation purposes'' 
at Corps reservoirs, with the approval of the Secretary of the Army, 
and after specific authorization by Congress of the additional works. 
Public Law 78-534 Sec.  8, 58 Stat. 891 (Dec. 22, 1944) (codified as 
amended at 43 U.S.C. 390). Section 8 further provided that Corps 
reservoirs ``may be utilized after December 22, 1944, for irrigation 
purposes only in conformity with the provisions of this section.'' Id.
---------------------------------------------------------------------------

    \15\ See 90 Cong. Rec. 8545-8549 (Nov. 29, 1944); id. at 8548 
(text of proposed amendment by Sen. O'Mahoney that would authorize 
the Secretary of War ``to contract for water storage for any 
beneficial uses or purposes''; statement of Sen. O'Mahoney that 
proposed amendment would enable the Secretary to make surplus waters 
``available for any purpose, domestic irrigation or otherwise, which 
residents in the neighborhood or in the vicinity affected may 
desire,'' but would also require the Secretary ``to take into 
account the fundamental principles which have governed the 
distribution and use of water in the West,'' i.e., the Reclamation 
laws); id. (statement of Sen. Hayden that to enable ``the Secretary 
of War also to sell water for irrigation uses on such terms and 
conditions as he may prescribe'' would ``change the basis of the 
reclamation law''); id. at 8548-49 (statement of Sen. Hatch 
expressing concern that proposed O'Mahoney amendment could authorize 
the Secretary of the Army to ``construct dams and reservoirs, and to 
supply water for purposes which would be entirely removed from the 
reimbursable features, as well as the acreage limitations and the 
other basic foundations of our irrigation law''); id at 8549 
(statement of Sen. Millikin that ``section 4 [i.e., the later 
renumbered Section 6], the [O'Mahoney] amendment we have been 
considering, and the succeeding amendment [Section 8] to be offered 
have the combined purpose of not subjecting all of the detail of the 
reclamation law to projects where the Army engineers have a 
reservoir in the middle of an existing privately owned irrigation 
system, where those who have that private irrigation system are in 
independent position to take the water and therefore should not be 
required to go through all the incidents of a reclamation project 
started from grass roots'').
---------------------------------------------------------------------------

    Read together, in the context of the Flood Control Act of 1944, 
Sections 6 and 8 make clear that Congress assigned different 
authorities and responsibilities to the Department of the Interior and 
the Department of the Army. The Secretary of the Interior was 
authorized under Section 8 to construct and operate federal irrigation 
works, in accordance with the federal reclamation laws, pursuant to 
specific authorizations by Congress. The reclamation laws, like the 
WSA, generally provide for the recovery of federal investment costs by 
end users. The Secretary of the Army was given a different authority 
under Section 6, to enter into contracts for surplus water for domestic 
and industrial uses, when surplus water is available at a Corps 
reservoir. Section 6 does not require the recovery of federal 
investment costs, but rather, authorizes the Secretary of the Army to 
establish a ``reasonable'' price. If Section 6 had been interpreted to 
authorize the Secretary of the Army to store and deliver irrigation 
water to users for whom Congress had authorized the Secretary of the 
Interior to construct separate irrigation works, the potential would 
have existed for the Corps to dispose of ``surplus water'' in a manner 
that would defeat the purpose of the separate, federal irrigation 
works.\16\ Moreover, because Section 6 grants broad discretion to the 
Secretary of the Army to establish prices for contracts for uses of 
surplus water at Corps reservoirs, members of Congress expressed 
concern that those prices could undermine the objective under the 
federal reclamation laws of reimbursing the Treasury for the cost of 
constructing federal irrigation works, if both Secretaries were selling 
water for the same purposes on different terms.\17\
---------------------------------------------------------------------------

    \16\ See 90 Cong. Rec. 8549 (Nov. 29, 1944) (statement of 
Interior Secretary Harold Ickes and ensuing debate).
    \17\ Id.
---------------------------------------------------------------------------

    These problems may be avoided, and the two sections harmonized, by 
an interpretation of the ``domestic and industrial uses'' under Section 
6 that clearly distinguishes those uses from irrigation uses under the 
federal reclamation laws. The definition of

[[Page 91569]]

``domestic and industrial uses'' in the proposed rule therefore 
excludes irrigation uses that Congress intended to be provided for 
pursuant to the federal reclamation laws under 43 U.S.C. 390. The 
phrase does not, however, clearly exclude other uses of water for 
agricultural or other purposes in accordance with State law, in 
circumstances where Congress did not intend those particular uses to be 
provided for through the construction of federal irrigation works. 
Given Congress's clear concern that uses of surplus water should not 
adversely affect any then existing lawful use, it does not seem 
reasonable to interpret the term ``domestic and industrial uses'' in a 
manner that would preclude a user from exercising a lawful right to use 
water for agricultural purposes, when that right could be facilitated 
through withdrawals of surplus water from a Corps reservoir in the 
absence of federal irrigation works, or to exclude all uses for 
activities that might be deemed commercial and therefore not 
encompassed within the phrase ``domestic and industrial uses.''
    Accordingly, the Corps proposes to define the term ``domestic and 
industrial uses'' under Section 6 to mean ``any beneficial use under an 
applicable water rights allocation system, other than irrigation uses 
as provided under 43 U.S.C. 390.'' We believe this definition is 
consistent with the plain text of Sections 6 and 8, their relationship 
in the Flood Control Act of 1944 and its legislative history, and the 
Congressional intent manifested therein that the authority of the 
Secretary of the Army to make contracts for surplus water uses under 
Section 6 should remain distinct from the authority of the Secretary of 
the Interior under Section 8 to provide for irrigation uses of Corps 
reservoirs pursuant to the reclamation laws and subsequent 
Congressional authorizations. To interpret the phrase otherwise, as 
excluding all agricultural uses of surplus water, is not mandated by 
the plain language of the statute and would, in the Corps' view, be 
inconsistent with Congress's intent that persons holding valid water 
rights should be able to withdraw surplus water from a Corps reservoir, 
when doing so would not interfere with authorized federal purposes or 
with any then existing lawful use, and when no federal irrigation works 
of the Department of the Interior are available to accommodate the 
particular use of surplus water. Under this proposed definition of 
``domestic and industrial uses,'' certain agricultural uses of surplus 
water could be accommodated under Section 6. However, if a potential 
surplus water need could be satisfied through authorized irrigation 
works of the Department of the Interior, pursuant to 43 U.S.C. 390, the 
Corps would not consider that water need to constitute a ``domestic 
[or] industrial use,'' and would not enter into a surplus water 
agreement for direct withdrawals by a nonfederal entity from a Corps 
reservoir to satisfy that need. Under such circumstances, the use would 
constitute an ``irrigation use'' within the meaning of 43 U.S.C. 390, 
and that provision of law, not Section 6, would be the appropriate 
vehicle for the federal government to accommodate the water need.\18\
---------------------------------------------------------------------------

    \18\ 43 U.S.C. 390 also provides for the interim irrigation use 
of storage that has been allocated to municipal and industrial water 
supply in a Corps reservoir but is not under contract for delivery. 
See Water Resources Development Act of 1986, Public Law 99-662, 
Sec.  931, 100 Stat. 4082 (Nov. 17, 1986) (codified at 43 U.S.C. 
390). Under such circumstances, which do not involve any 
determination of ``surplus water'' pursuant to Section 6, the Corps 
may enter into interim contracts for irrigation uses under 43 U.S.C. 
390, not Section 6. As of 2012, three such interim irrigation 
agreements were in effect at Corps reservoirs. See 2011 M&I Water 
Supply Database at 4.
---------------------------------------------------------------------------

    In proposing this definition, the Corps recognizes that today, 
water is used for many purposes, and hence questions can arise as to 
what uses are covered by the phrase ``domestic and industrial uses.'' 
For example, the Corps recognizes that water has been withdrawn by 
private individuals and entities from the Corps' Missouri River 
mainstem reservoirs for a variety of uses, and that this has generated 
questions about whether these uses should be classified as ``domestic'' 
or ``industrial.'' Some of the withdrawals are for domestic household 
uses, and some in furtherance of activities which more aptly might be 
characterized as commercial in nature. Other withdrawals are in aid of 
agricultural activities that are taking place in areas where no other 
irrigation delivery system exists. Previous Corps guidance suggests 
that ``crop irrigation'' is not a use that can be accommodated under 
Section 6 (or the WSA), but does not define that term or elaborate on 
its meaning.\19\ The Corps considers a definition of ``domestic and 
industrial uses'' that would exclude all agricultural and commercial 
uses of water to be unduly rigid and undesirable from practical and 
policy perspectives. Interpreting ``domestic and industrial uses'' in a 
manner that would preclude the Corps from making surplus water 
available to an individual who is entitled under an applicable water 
rights system to use that water for commercial or domestic agricultural 
needs, in circumstances where the user would not otherwise be able to 
access that water, does not seem reasonable. In addition, federal 
reclamation projects and facilities exist only in the Western States, 
and it is unreasonable to assume that Congress intended to preclude any 
agricultural or commercial uses of water from a Corps reservoir in 
other States, where no federal irrigation works have been constructed 
pursuant to the federal reclamation laws.\20\ The Corps believes that 
some agricultural and commercial uses can be accommodated within 
``domestic and industrial uses'' of surplus water, provided that those 
uses do not conflict with the meaning of ``irrigation purposes'' under 
43 U.S.C. 390.
---------------------------------------------------------------------------

    \19\ See ER 1105-2-100 at E-214 (Section 6 agreements ``may be 
for domestic, municipal, and industrial uses, but not for crop 
irrigation.'').
    \20\ This provision is reinforced by Congress's enactment of 
separate legislation in 1982, 43 U.S.C. 390ll, which makes clear 
that provisions of federal reclamation law apply only to Corps 
reservoirs where ``(1) the project has, by Federal statute, 
explicitly been designated, made a part of, or integrated with a 
Federal reclamation project; or (2) the Secretary, pursuant to his 
authority under Federal reclamation law, has provided project works 
for the control or conveyance of an agricultural water supply for 
the lands involved.'' See also S. Rep. No. 97-373 at 16 (April 29, 
1982) (noting that ``court decisions and sporadic efforts . . . have 
served to create a shadow extending over all agricultural lands 
involved with Corps projects,'' and that purpose of 43 U.S.C. 390ll 
is to clarify that reclamation laws shall apply to Corps reservoirs 
only where Congress has expressly so provided).
---------------------------------------------------------------------------

    Moreover, the Corps recognizes that States define beneficial uses 
and water rights differently, and what might constitute an irrigation 
use under the water rights allocation system of one State might be 
considered a public or domestic use under applicable systems in another 
State. When it exercises its authority under Section 6, the Corps does 
not determine water supply needs, or allocate consumptive water use 
rights. Instead, the Corps is simply making a determination that a 
particular amount of water is not required for an authorized federal 
purpose. Upon making that determination, the Corps may enter into an 
agreement with a surplus water user to enable that user to withdraw 
that water, provided that the user has a valid water right. The 
determination and approval of beneficial uses is made separately, under 
an applicable water rights allocation system, not by the Corps itself. 
By defining ``domestic and industrial uses'' under Section 6 to mean 
``any beneficial use under an applicable water rights allocation 
system, other than irrigation uses under 43 U.S.C. 390,'' the Corps 
would respect

[[Page 91570]]

the States' ability to define and allocate lawful uses within their 
boundaries, and would be able to make surplus water in its reservoirs 
available for the broadest possible extent of such uses, while 
respecting Congressional intent and avoiding interference with federal 
irrigation works or other activities of the Department of the Interior 
pursuant to the federal reclamation laws.\21\
---------------------------------------------------------------------------

    \21\ The Corps' proposed definition is also consistent with the 
definitions of the term ``irrigation water'' in 43 U.S.C. 390bb 
(``water made available for agricultural purposes from the operation 
of reclamation project facilities pursuant to a contract with the 
Secretary [of Interior]'') and in U.S. Department of the Interior, 
Bureau of Reclamation regulations at 43 CFR 426.2 (``water made 
available for agricultural purposes from the operation of 
Reclamation project facilities pursuant to a contract with 
Reclamation''). The use of ``irrigation water,'' as defined in those 
provisions, would not be a ``domestic [or] industrial use'' of 
surplus water under the Corps' proposed definition in these 
regulations.
---------------------------------------------------------------------------

d) Avoiding Adverse Effects on ``Then Existing Lawful Uses''
    The proposed rule defines the term ``then existing lawful uses'' in 
Section 6 to mean ``uses authorized under a State water rights 
allocation system, or Tribal or other uses pursuant to federal law, 
that are occurring at the time of the surplus water determination, or 
that are reasonably expected to occur during the period for which 
surplus water has been determined to be available.'' The Corps has not 
previously defined this statutory term, but has recognized that in 
order to avoid interference with then existing lawful uses (including 
the CWA and the ESA), individuals or entities entering into surplus 
water agreements with the Corps must obtain and defend all necessary 
water rights. See ER 1105-2-100 at 3-32, E-202. The reference to 
``Tribal or other uses pursuant to federal law'' is intended to 
recognize and protect Tribal reserved water rights, including reserved 
water rights that have not yet been quantified, or any other federal 
reserved water rights, such as those associated with military 
installations, or withdrawals pursuant to interstate compacts or other 
provisions of federal law (including the CWA and ESA).\22\
---------------------------------------------------------------------------

    \22\ The definition and quantification of Tribal reserved water 
rights are beyond the scope of the proposed regulations. However, 
the Corps recognizes that Tribal reserved water rights enjoy a 
unique status under federal law, and that the exercise of such 
rights does not require the exercise of discretion by the Department 
of the Army to include storage in a reservoir under the WSA, or to 
make surplus water available under Section 6. The Department of the 
Interior is the federal agency charged with implementing the trust 
obligations of the United States with respect to Native American 
reservations. The Corps will coordinate surplus water determinations 
with the Department of the Interior and Tribal water resource 
agencies in order to identify any potential issues regarding lawful 
uses involving Tribes. Further, the Corps will grant access across 
federal lands controlled by the Corps when necessary to facilitate 
the exercise of Tribal reserved rights, without requiring a Section 
6 or WSA agreement.
---------------------------------------------------------------------------

    The proposed rule would require that before making surplus water 
determinations, the Corps will coordinate with States, Tribes, and 
federal agencies, and will provide notice and opportunity for public 
comment, to ensure that surplus water uses during the period under 
consideration will not interfere with any water rights that are already 
in place, or are expected to be in place during that period. This early 
coordination will enable responsible water resource agencies to verify 
that the proposed surplus water withdrawals are consistent with 
applicable water rights. The Corps is not authorized under Section 6 to 
enter into any contracts for surplus water uses that would interfere 
with any then existing lawful use. In addition, the proposed rule 
recognizes that it is the responsibility of private water supply users 
to secure any state water rights necessary to use water withdrawn from 
a Corps reservoir, further ensuring that there will be no tension 
between a contract for surplus water uses under Section 6 and any 
lawful use of water that may occur during the period of the Corps' 
surplus water determination.
e) Determining ``Reasonable'' Prices for Section 6 Agreements
    Section 6 affords wide latitude to the Secretary of the Army to 
establish the terms of surplus water agreements, requiring only that 
the Secretary determine ``such prices and . . . such terms as [the 
Secretary] may deem reasonable.'' The term ``reasonable'' is not 
defined in Section 6, and Congress has provided no specific guidance on 
how the Secretary should make that determination. Congress has 
expressed its sense that when an agency provides ``a service or thing 
of value . . . to a person,'' that provision ``is to be self-sustaining 
to the extent possible.'' 31 U.S.C. 9701(a). And it is federal 
government policy that ``[w]hen a service (or privilege) provides 
special benefits to an identifiable recipient beyond those that accrue 
to the general public, a charge will be imposed (to recover the full 
cost to the Federal Government for providing the special benefit, or 
the market price).'' Office of Management and Budget (OMB) Circular No. 
A-25 Revised (July 8, 1993), available at https://www.whitehouse.gov/omb/circulars_a025 (OMB Circular A-25).
    Past Army guidance has suggested different approaches to 
determining reasonable prices for surplus water agreements, including 
the possibility of a standard minimum charge or a unit charge for 
relatively small amounts of surplus water. Since 1977, the Corps' 
internal guidance has indicated that surplus water agreements should 
include an annual charge that is equivalent to the cost that would be 
assessed annually in a long-term WSA agreement, that is, an annual 
charge equivalent to the cost of providing the amount of storage 
calculated to yield the desired withdrawals, amortized over a multi-
year term, plus a share of operation and maintenance costs, and a share 
of any repair, rehabilitation, or replacement costs. See Engineer 
Regulation (ER) 1165-2-105, Change 15 (March 1, 1977); ER 1105-2-100, 
app. E and E-215 (April 22, 2000). This annual charge would be applied 
to each year of the contract term. Since the cost allocated to water 
supply in a WSA storage agreement is typically repaid over a thirty-
year period, with interest, and since Section 6 contracts are typically 
for a shorter period, the cost of storage paid under a Section 6 
agreement under this policy would be less than the total cost of 
storage that would be recovered under a WSA agreement. Current Corps 
policy provides that Section 6 agreements shall normally be limited to 
five years, although in practice, some Section 6 contracts have lasted 
longer than that. The Corps does not have an established practice of 
applying the ER pricing methodology, as the few surplus water contracts 
currently in existence that cite Section 6 (nine contracts, as of July 
2016) do not fully apply that methodology, and only one involves annual 
fees.
    In response to concerns raised by stakeholders in the Missouri 
River basin associated with surplus water reports at the Corps' 
mainstem reservoirs, and upon further consideration of the statutory 
text of both Section 6 and the WSA, the Corps has reconsidered its 
pricing methodology under Section 6. The current pricing policy set 
forth in the ER effectively conflates the provision of surplus water 
under Section 6 with the inclusion of storage under the WSA, and the 
Corps recognizes that this may not result in the most appropriate price 
for surplus water agreements, given the Congressional intent behind 
Section 6. The WSA authorizes the Corps to include storage in a 
reservoir project for water supply uses, making water supply an 
authorized purpose of the project, on the condition that State or local 
interests agree to pay the of share of project

[[Page 91571]]

construction and operation costs allocated to that purpose. Under 
Section 6, water supply is not made an authorized purpose of the 
project, the Corps does not need to include storage in the project in 
order to allow surplus water withdrawals, and the statute does not 
require that surplus water users reimburse the Corps for a share of 
project construction and operation costs. Section 6 requires only that 
the Secretary determine a ``reasonable'' price, with no indication that 
Congress intended that price to include reimbursement of project costs 
in the same manner as water supply storage under the WSA.
    Moreover, many stakeholders have questioned whether current or 
projected withdrawals from the Missouri River mainstem reservoirs 
utilize ``storage'' at all, and have objected to proposals to charge 
for surplus water withdrawals under Section 6 based on a share of the 
updated cost of storage. In the 1980s, the Assistant Secretary of the 
Army (Civil Works) considered changes to the Corps' then-existing 
Section 6 pricing policy, and expressed the view that ``withdrawals 
from the mainstem Missouri River reservoirs for municipal and 
industrial uses that do not depend upon storage for the level of 
dependability necessary to satisfy municipal and industrial demands 
should not require that a charge be assessed for such storage.'' \23\ 
Those changes were never formally adopted, and the Corps' internal 
guidance has continued to indicate that surplus water agreements should 
be priced on the same annual basis as WSA storage agreements. 
Meanwhile, the Corps has continued to allow withdrawals from the 
Missouri River mainstem reservoirs without entering into surplus water 
contracts or charging for surplus water withdrawals.
---------------------------------------------------------------------------

    \23\ Assistant Secretary of the Army for Civil Works Robert K. 
Dawson to Senator Quentin Burdick, March 5, 1986; S. Rep. No. 99-126 
at 30 (July 16, 1985). The ASA(CW) made these observations at a time 
when Congress considered, but ultimately rejected, legislative 
proposals that would have precluded ``any payment for waters 
withdrawn by a State, or its political subdivisions, or by a 
nonprofit entity, for municipal or industrial uses . . . from a 
[Corps] Missouri River mainstem reservoir . . . if the existence of 
the reservoir involved will not enhance the dependability of the 
withdrawal under conditions of one hundred year, seven day low flow 
in the Missouri River.'' 99th Congress, 1st Session, S. 1567, sec. 
236 (Jan. 8, 1986); S. Rep. No. 99-126 at 30. The ASA(CW) further 
observed, in a letter to Sen. Burdick, that a successful legislative 
proposal would have to (1) clarify the Corps' authority to allow 
water supply withdrawals from Corps reservoirs (2) provide a ``fair 
and equitable formula for allowing natural flows of the Missouri 
River to be withdrawn at no charge,'' and (3) recognize and protect 
the Corps' continuing obligation to operate for authorized project 
purposes. The ASA(CW) reiterated in this correspondence that ``we 
continue to be guided by the principle that beneficiaries of Federal 
water resources development projects should share in the costs of 
such projects in accordance with the guidance of Congress, [but] 
agree strongly with [Sen. Burdick's] position that there should be 
no payments where no benefit is received.'' ASA(CW) Dawson to Sen. 
Burdick, March 5, 1986.
---------------------------------------------------------------------------

    In 2012, in connection with the Corps' final Surplus Water Report 
for Lake Sakakawea, the Assistant Secretary of the Army (Civil Works) 
determined that no charge should be made for surplus water uses 
proposed in that report, pending the outcome of notice and comment 
rulemaking to establish a nationwide Section 6 pricing methodology, 
with input from all interested stakeholders. In 2014, Congress enacted 
legislation precluding the Corps from charging for surplus water uses 
from its Missouri River mainstem reservoirs for a ten-year period 
beginning June 10, 2014. WRRDA 2014, Sec.  1046(c). The legislation is 
expressly limited to the ten-year period and to the Missouri River 
mainstem reservoirs, and does not affect the application of Section 6 
to surplus water stored elsewhere.
    In reviewing the statutory language of Section 6, more recent 
legislation and legislative proposals, and in considering comments that 
have been offered on the Missouri River Surplus Water Reports, the 
Corps acknowledges that charging for Section 6 agreements on the same 
basis as WSA storage agreements (i.e., by charging users an annual fee 
based on the higher of benefits foregone, revenues foregone, or the 
updated cost of constructing reservoir storage) is neither required by 
the statute, nor the best approach in all circumstances. The principles 
that make such charges reasonable under the WSA--statutory language 
requiring users to pay for storage costs, the physical inclusion of 
storage for water supply, and the addition of water supply as a new, 
long-term authorized purpose of the federal project--do not apply in 
the case of surplus water withdrawals that are provisionally approved 
for limited time periods under Section 6. The Corps has no statutory 
duty under Section 6, as it does under the WSA, to recover storage 
costs, and the Corps is not foregoing benefits that Congress expected 
the Corps to deliver for other authorized purposes when it authorizes 
surplus water withdrawals, if the surplus water has been determined not 
to be required in order to accomplish those purposes, or to comply with 
responsibilities under other federal law, such as the CWA or ESA.. 
Thus, the statutory text of Section 6 does not require that a 
``reasonable'' price under Section 6 must include charges for benefits 
foregone, revenues foregone, or the updated cost of storage.
    Moreover, the Corps is aware of the observations by some in the 
Upper Missouri River Basin that many existing and proposed withdrawals 
from mainstem reservoirs do not rely upon reservoir storage, and could 
be satisfied by the natural flow of the Missouri River absent the flow 
regulation and storage capacity afforded by the Corps' mainstem system. 
The Corps has previously acknowledged the principle that users should 
not be required to pay for benefits that they do not receive. While it 
may be technically possible, as the Assistant Secretary of the Army 
(Civil Works) observed in 1986, to evaluate whether particular surplus 
water withdrawals do or do not rely upon storage, Section 6 does not 
require the Corps to undertake such an analysis, and the time and cost 
required to perform such an analysis on a continuing basis may be 
considerable. Further, the federal government requires information 
about the quantity and volume of such withdrawals, in order to best 
manage the reservoirs. As discussed below, the proposed rule would 
clarify the Corps' view that long-term and permanent water supply needs 
that require the dependability afforded by storage should be 
accommodated by including storage as an authorized project purpose, as 
provided in the WSA, and not by making contracts for surplus water. 
When storage is allocated under the WSA to water supply, at the expense 
of other authorized purposes, the proposed rule would provide for 
appropriate allocation of storage costs to water supply. For 
withdrawals that are (individually or cumulatively) utilizing surplus 
water, as defined in the proposed rule, without any reallocation of 
storage from other purposes to water supply, a pricing methodology that 
seeks to recover only the costs incurred by the Corps in authorizing 
those withdrawals would be simpler to implement than determining a 
hypothetical cost of storage, and would be fully consistent with the 
statutory language of Section 6.
    Accordingly, the proposed rule provides a new pricing policy to 
establish a ``reasonable'' price under Section 6, which would apply to 
all surplus water uses unless specific federal law provides otherwise 
(i.e., the Water Resources Reform and Development Act of 2014 (WRRDA 
2014), for Missouri River mainstem reservoirs until June 2024). For new 
Section 6 agreements at Corps reservoirs, prices for Section 6 surplus 
water contracts would include only the full, separable costs incurred 
by the

[[Page 91572]]

Government in making surplus water available during the term of the 
surplus water agreement. These costs would be measured by estimating 
the full, separable costs that the Corps may incur by accommodating the 
surplus water withdrawals, such as expenses associated with 
administering and monitoring the contract, or by making temporary 
changes to reservoir operations to accommodate the surplus water 
withdrawals. Separable costs are those attributable solely to making 
the surplus water available. Congress has used separable cost pricing 
when Corps operations for water supply do not amount to a right to 
water storage. See, e.g., Section 308 of the Water Resources 
Development Act of 1996 (Pub. L. 104-303); Section 110 of the Energy 
and Water Development Appropriations Act, 2005 (Division I of Pub. L. 
108-447). The proposed rule adapts this concept to the criterion of 
``full cost,'' as defined in OMB Circular A-25, to meet the Section 6 
requirement for reasonable pricing of surplus water as follows. ``Full 
cost,'' as defined in OMB Circular A-25, ``includes all direct and 
indirect costs to any part of the Federal Government of providing a 
good, resource, or service'':

    These costs include, but are not limited to, an appropriate 
share of: (a) Direct and indirect personnel costs [. . .][;] (b) 
Physical overhead, consulting, and other indirect costs including 
material and supply costs, utilities, insurance, travel, and rents 
or imputed rents on land, buildings, and equipment [. . .][;] (c) 
[M]anagement and supervisory costs [ ][;] and (d) the costs of 
enforcement, collection, research, establishment of standards, and 
regulation, including any required environmental impact statements. 
(e) Full cost shall be determined or estimated from the best 
available records of the agency, and new cost accounting systems 
need not be established solely for this purpose.\24\
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    \24\ Office of Management and Budget (OMB) Circular No. A-25 
Revised ] 6.d(1) (July 8, 1993), available at https://www.whitehouse.gov/omb/circulars_a025.

    Based on the available information from existing surplus water 
contracts and estimated surplus water uses, the Corps expects that full 
costs incurred in connection with surplus water withdrawals would 
ordinarily be insubstantial. The service being provided when the Corps 
makes surplus water available pursuant to Section 6 is not (in contrast 
to storage included under the WSA) the allocation or reallocation of 
storage from another purpose or purposes to water supply, but rather, 
the authorization to withdraw, for a limited time period, surplus water 
that is already available at a reservoir. Because ``surplus water'' 
would be defined under the proposed rule as water that is not required 
during a specified time period to accomplish any authorized purpose of 
the project, and because the withdrawal infrastructure is provided by 
the non-federal water supply user, at no cost to the Government, the 
Corps does not expect to incur additional, direct or indirect personnel 
costs, physical overhead or other indirect costs, management and 
supervisory costs, or enforcement costs, associated with the 
withdrawals themselves. Certain of these costs may be incurred by the 
Corps when it makes determinations related to, but distinct from, the 
surplus water withdrawals, such as granting real estate easements to 
access a Corps reservoir, or evaluating and issuing regulatory permits 
for intake construction. Those costs, and those separate actions, would 
not be affected by this proposed rule, and would not be assessed in 
connection with the surplus water contract itself. Only the additional 
costs, if any, that the Government incurs as a result of the surplus 
water withdrawals--the full, separable costs of making surplus water 
available--would be included in the full cost charged in connection 
with surplus water contracts.
    To the extent that such costs do occur, we consider it eminently 
reasonable, and consistent with OMB Circular A-25 and 31 U.S.C. 9701, 
that costs that the Government incurs in exercising its discretion 
should be borne by the users for whom the changes are being made. Any 
other costs directly attributable to surplus water withdrawals, such as 
construction and operation of intake facilities and pipelines, would 
continue to be the responsibility of the user, not the Corps, as 
provided under existing guidance. This proposed pricing methodology is 
intended to ensure that surplus water users pay only for costs that the 
Government incurs in making surplus water available, and to distinguish 
that pricing methodology from the methodology that is used for WSA 
agreements to conform to statutory requirements of the WSA. In most 
cases, the Corps expects that the amount charged for surplus water 
agreements under this methodology would be small, as surplus water 
withdrawals generally are not expected to involve significant costs to 
the Government.
    The proposed rule would not apply retroactively to current 
contracts or to other uses that are currently authorized under separate 
authority. For current contract holders, any new contract following 
expiration of the current contract would adopt the new pricing criteria 
included in the final rule. Current surplus water withdrawals that are 
occurring pursuant to easements only, without a surplus water contract, 
would be reassessed when the easements expire, or within five years 
after the effective date of the final rule, whichever is earlier. 
Continued withdrawals after that time would need to be authorized under 
a combined easement and contract document. This will ensure that all 
uses of surplus water at Corps reservoirs, and any impacts from such 
uses on reservoir operations, are formally evaluated; and that all 
surplus water withdrawals are properly documented and authorized under 
Section 6. For surplus water uses where the Corps has been prohibited 
from charging a few for surplus water contracts, e.g., the Missouri 
River mainstem reservoirs until June 2024, the Corps will not charge 
for surplus water contracts. Study costs associated with Section 6 
surplus water reports would continue to be addressed in accordance with 
applicable law, which would not be affected by this proposed 
rulemaking; however, where consistent with applicable law, if water 
supply users are concerned about expediting a surplus water 
determination, they may opt to contribute funds to complete a study, 
similar to water supply storage reallocations.
    The proposed Section 6 pricing methodology, while different from 
the methodology currently set forth in ER 1105-2-100, would not result 
in significant costs to surplus water users or to the United States 
Treasury. ER 1105-2-100 currently indicates that surplus water 
contracts should include charges equivalent to the annual price that a 
water supply user would pay if the Corps had permanently reallocated 
storage to water supply at that project under the WSA. That WSA price 
is based upon the cost that the Government would incur in constructing 
equivalent storage, or the revenues or benefits that the Government 
would forego by permanently reallocating the storage from another 
authorized purpose to water supply. However, in entering into contracts 
for surplus water, as defined in the proposed rule, the Corps would not 
be permanently reallocating storage to water supply, and would not be 
incurring the costs that would accompany such a reallocation under the 
WSA, or foregoing long-term revenues or benefits that would otherwise 
be realized in connection with authorized purposes. Instead, the Corps 
would only be entering into contracts allowing entities to withdraw 
water already available at a Corps

[[Page 91573]]

reservoir, and not required in order to fulfill any authorized project 
purpose, for a limited time period. Under the proposed rule, surplus 
water users would be charged only the full, separable cost to the 
Government of making the surplus water available during that period.
    The proposed rule would recognize the need for both technical and 
legal analysis of the circumstances and project authorization to 
determine whether water is required for an authorized purpose or to 
meet the requirements of the CWA, ESA or other federal mandates. 
Additionally, for projects with a federal hydropower purpose, the Corps 
would coordinate surplus water determinations in advance with the 
applicable Federal PMA, and utilize in its determinations any 
information that the PMA provides regarding potential impacts to the 
federal hydropower purpose, including revenues and benefits foregone. 
As provided in the proposed definition of ``surplus water,'' to the 
extent that water is determined to be required to fulfill the 
hydropower purpose, or any other authorized purpose, it would not be 
considered ``surplus'' under the proposed rule.
    We believe that the proposed pricing methodology is both 
objectively reasonable and consistent with Congressional intent, given 
the differences between Section 6 and the WSA. It is also consistent 
with the policy that user charges will be sufficient to recover the 
full cost to Federal Government of providing service, resource, or good 
when the Government is acting in its capacity as sovereign, in this 
case, operating and maintaining the reservoir and adjacent lands where 
the water supply withdrawals are occurring. With regard to the Missouri 
River mainstem reservoirs in particular, we believe that the proposed 
rule would be consistent with past practice in authorizing surplus 
water withdrawals without charges, responsive to concerns that have 
been raised, and would avoid disruption and costs in connection with 
existing and anticipated withdrawals. Specifically, we anticipate that 
the proposed pricing methodology, and the proposed incorporation of 
Section 6 authorizations with real estate instruments required for 
reservoir access under separate law, would result in withdrawals 
continuing to occur from Missouri River mainstem reservoirs at no cost 
before June 2024, and at minimal or no cost thereafter. New surplus 
water users at the Corps' Missouri River mainstem reservoirs, and at 
any other Corps reservoirs where surplus water may be determined to be 
available, would not be required to pay for the cost of reservoir 
storage in connection with surplus water withdrawals. Withdrawals of 
surplus water as defined in the proposed rule would be unlikely to 
result in any significant direct costs to the Corps, and so we 
anticipate that any charges associated with surplus water agreements 
under the proposed rule would be minimal.\25\
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    \25\ In its final Surplus Water Report for Lake Sakakawea, for 
example, the Corps' Omaha District concluded that making 100,000 
acre-feet of surplus water available for withdrawal over a ten-year 
period would not result in any changes to Missouri River mainstem 
system operations. U.S. Army Corps of Engineers, Omaha District, 
Final Garrison Dam/Lake Sakakawea Project, North Dakota, Surplus 
Water Report, Vol. 1 at ii (March 2011), available at http://cdm16021.contentdm.oclc.org/cdm/ref/collection/p16021coll7/id/37. 
Draft surplus water reports prepared for the other five mainstem 
reservoirs also indicated that no operational changes would be 
required for the surplus water withdrawals contemplated there. See 
http://www.nwo.usace.army.mil/Missions/CivilWorks/Planning/PlanningProjects.aspx (draft surplus water reports for Fort Peck 
Dam, MT, Oahe Dam, SD, Big Bend Dam, SD, Fort Randall Dam, SD, and 
Gavins Point Dam, SD). The pricing for surplus water agreements 
contemplated in those reports has been superseded by Section 1046(c) 
of the Water Resources Reform and Development Act of 2014, Public 
Law 113-121, 128 Stat. 1193 (June 10, 2014), which provides that no 
charges will be assessed under contracts for uses of surplus water 
stored in the Corps' Upper Missouri River reservoirs for ten years 
after June 10, 2014. If, under the proposed regulations, charges 
were imposed for surplus water uses after that ten-year period based 
on the full, separable costs incurred by the Corps by accommodating 
the withdrawals, such charges would be expected to be minimal, based 
on the figures contained in the Surplus Water Reports.
---------------------------------------------------------------------------

    Further, the proposed rule would increase standardization of Corps 
practice by ensuring that all uses of surplus water at a Corps 
reservoir are formally evaluated and authorized by the Corps. This 
would improve the Corps' operations of its reservoirs, by ensuring 
greater knowledge about the ongoing and potential withdrawals, 
including withdrawals for which storage is not allocated under the WSA. 
We invite comments from all interested parties on this pricing 
proposal.
    The Corps acknowledges that in concept, there are multiple benefits 
conferred to those users making Section 6 withdrawals from Corps 
reservoirs, including an increased level of dependability to ensure 
that withdrawals can be made, and there could be a market value 
associated with such benefits. It is federal policy that user charges 
will be based on market prices (meaning the price for a good, resource, 
or service that is based on competition in open markets, and creates 
neither a shortage nor a surplus of the good, resource, or service) 
when the Government, not acting in its capacity as sovereign, is 
leasing or selling goods or resources, or is providing a service. Thus, 
as an alternative to the proposed pricing methodology, the Corps could 
incorporate the market price of water supply reliability or other 
benefits into its surplus water pricing policy. We solicit comments on 
whether the price of surplus water contracts should include the 
economic value of the water supply storage benefit these contracts 
provide (e.g., greater reliability in withdrawing water from a 
reservoir), or reimbursement of indirect costs such as foregone 
hydropower revenue
(f) Documentation of Surplus Water Agreements
    In response to issues raised by those who have expressed concerns 
about the requirement to execute multiple documents, the Corps proposes 
to simplify and streamline administrative processes under Section 6. 
Currently, ER 1105-2-100 envisions entering into a Section 6 surplus 
water agreement that is separate from any real estate instrument that 
is necessary to provide access to the reservoir for the purpose of 
making withdrawals. The granting of real estate interests occurs 
pursuant to separate statutes and regulations, and is not governed by 
Section 6 (or the WSA). The proposed rule would not alter those 
statutes and regulations, but it would combine the approval to withdraw 
surplus water (the surplus water contract required under Section 6) 
with the real estate instrument in a single document that would 
memorialize the agreement between the Corps and a nonfederal entity for 
access to a Corps reservoir to withdraw surplus water. That document 
would include charges pursuant to the proposed Section 6 surplus water 
pricing policy, and it would also include any applicable charges for 
the real estate interest. Charges for such real estate instruments are 
determined under other laws, regulations and policies, and would not be 
affected by this proposed rule.
    By combining the surplus water contractual terms with the real 
estate instrument, the Corps expects to simplify and streamline the 
administrative processes associated with surplus water withdrawals, 
potentially avoiding delays and some transactional costs, compared to a 
process in which both a surplus water contract and a separate real 
estate easement would be required. Additionally, combining the two 
documents ensures greater consistency between them, avoiding past 
circumstances in which water supply

[[Page 91574]]

agreements have expired prior to easements, or vice versa. This new 
policy would also help prevent recurrences of situations where 
easements to support water supply withdrawals have been granted without 
execution of an underlying water supply agreement under either Section 
6 or the WSA. This will help ensure that all uses of surplus water at 
Corps reservoirs are documented and authorized, and that any impacts 
from such uses on reservoir operations are formally evaluated.
(g) Duration of Surplus Water Determinations and Agreements
    Finally, the proposed rule addresses the duration of surplus water 
determinations and surplus water agreements. The current Corps policy 
guidance does not specify any particular time period for surplus water 
determinations. The guidance states only that contracts for surplus 
water uses under Section 6 (surplus water agreements) should be made on 
a provisional or short-term basis, normally limited to five-year 
periods, noting that ``[w]hen [a] user desires long term use, a 
permanent storage reallocation should be performed under the authority 
of the Water Supply Act.'' ER 1105-2-100, app. E at E-214 to 215. The 
proposed rule would afford greater flexibility to designate the 
availability of surplus water based on the particular circumstances, 
and would conform the terms of surplus water agreements to the duration 
of the applicable surplus water determination.
    Congress did not expressly limit the time period within which 
surplus water could be utilized under Section 6, leaving that and other 
contractual terms to the discretion of the Secretary of the Army, ``as 
[the Secretary] may deem reasonable.'' However, because hydrology, 
operations for authorized purposes, and other circumstances inevitably 
change over time, determinations of ``surplus water'' availability are 
inherently provisional, and the period of availability may vary 
depending upon the circumstances. Therefore, some time limitations are 
necessary for contracts for surplus water uses under Section 6.
    The proposed rule would acknowledge the inherently provisional 
nature of surplus water determinations under Section 6, but would not 
impose any fixed, universally-applicable time limitation on surplus 
water agreements. Instead, the proposed rule would provide that 
determinations of the availability of surplus water must specify the 
time period in which surplus water is determined to be available, and 
contracts for the use of surplus water shall be for a term not to 
exceed the duration of the applicable surplus water determination. The 
Corps envisions that contracts could be for a shorter period than the 
length of time considered in the surplus water determination, and may, 
at the discretion of the Assistant Secretary of the Army (Civil Works), 
be extended or renewed upon request, if a surplus water determination 
is still applicable, or if a new surplus water determination is made. 
This would provide flexibility to accommodate surplus water uses for 
longer periods of time, if that were determined to be appropriate in 
particular cases, and if surplus water continues to be available.
    As noted above, the proposed rule would allow the approvals that 
would be included in a Section 6 contract for surplus water uses to be 
incorporated into the real estate instrument that is necessary to 
provide access to a Corps reservoir for the purpose of making 
withdrawals. A single document would therefore memorialize the 
agreement between the Corps and a nonfederal entity for access to a 
Corps reservoir to withdraw surplus water. The duration of such 
agreements would be consistent with the duration of the applicable 
surplus water determination. The rule would continue to express the 
Corps' view that it is more appropriate to accommodate long-term or 
permanent water supply needs, such as those of communities that are 
served by public utilities or wholesale providers, under the WSA.
3. The Water Supply Act of 1958, 43 U.S.C. 390b (WSA)
    The WSA authorizes the Secretary of the Army, acting through the 
Corps, to either add or expand water supply storage as an authorized 
purpose of a reservoir project, and encourages consideration of current 
and long-term water supply needs in the planning, design, and operation 
of federal reservoirs. Whereas Section 6 enabled the Corps to make 
water available at an existing Corps reservoir during any period in 
which surplus water is determined to be available, the WSA increased 
the Corps' flexibility to provide a greater role for water supply at 
all stages of project development, from planning, design and 
construction to continuing operations.\26\ Congress, while recognizing 
the ``primary responsibilities of the States and local interests in 
developing water supplies for domestic, municipal, industrial, and 
other purposes,'' declared a national policy ``that the Federal 
Government should participate and cooperate with States and local 
interests in developing such water supplies in connection with the 
construction, maintenance, and operation of Federal navigation, flood 
control, irrigation, or multiple use projects.'' 43 U.S.C. 390b(a). 
Toward this end, the WSA authorizes the Secretary to make water supply 
an authorized purpose by including storage at any planned or existing 
Corps reservoir, for current or future municipal and industrial water 
supply needs, provided that ``State or local interests'' agree to pay 
for the cost of providing such storage, ``on the basis that all 
authorized purposes served by the project shall share equitably in the 
benefits of multiple purpose construction as determined by the 
Secretary of the Army.'' 43 U.S.C. 390b(b).
---------------------------------------------------------------------------

    \26\ See H.R. Rep. No. 85-1122 at 77 (1957) (recognizing ``need 
for more comprehensive authority for the inclusion of storage for 
water supply in reservoirs constructed by the Corps of Engineers''); 
104 Cong. Rec. 11497 (June 17, 1958) (statement of Sen. Case that 
the Water Supply Act ``establishes a sort of new field on water 
supply''); S. Rep. No. 85-1710 at 133 (1958) (noting that proposed 
Water Supply Act ``makes possible provision of water-supply storage 
in reservoirs where it is apparent that there will be a future 
demand for such storage but where the demand is not pressing at the 
time of construction'').
---------------------------------------------------------------------------

    The proposed rule would codify the Corps' interpretation of the 
``reservoir projects'' to which the WSA authority applies; the terms 
``water supply,'' ``municipal or industrial water,'' and ``municipal 
and industrial water supply''; the term ``include'' storage; and the 
limitations on modifications that would involve ``major structural or 
operational changes'' or that would ``seriously affect authorized 
purposes.'' In addition, the proposed rule would clarify how the Corps 
evaluates the effects of including storage for water supply, how the 
Corps allocates costs to water supply storage, and how the Corps 
considers return flows in connection with water supply withdrawals 
pursuant to WSA storage agreements.
(a) Definition of ``Reservoir Project'' and ``Project''
    The proposed rule would define the terms ``reservoir project'' and 
``project,'' as those terms are used in the WSA with respect to the 
Corps, to mean any facility surveyed, planned, or constructed, or to be 
planned, surveyed, constructed, or operated, by the Corps to impound 
water for multiple purposes and objectives. This definition 
incorporates the same, broad definition of ``reservoir'' that the Corps 
is proposing under Section 6, as discussed above. The Corps believes 
that this is

[[Page 91575]]

the most faithful interpretation of the concept of a ``reservoir 
project,'' and is consistent with the text of the WSA, which refers to 
the inclusion of ``storage . . . to impound water,'' and provides that 
the cost of including water supply ``shall be determined on the basis 
that all authorized purposes served by the project shall share 
equitably in the benefits of multiple purpose construction,'' 43 U.S.C. 
390b(b) (emphasis added).
    In addition, the proposed definition of the terms ``reservoir 
project'' and ``project'' with respect to the Corps under the WSA would 
encompass either a single dam-and-reservoir facility (i.e., a single 
``reservoir'') or a system of improvements, depending on how the 
improvement or improvements are ultimately authorized by Congress. In 
this respect, the definition emphasizes the need to consider the 
Congressional intent for the facility in question, not solely as an 
isolated facility, but in light of the overall plan of improvement, if 
any, that Congress approved when authorizing the specific facility. 
This overall Congressional intent is critical when considering the 
statutory limitation on modifications under the WSA that would 
``seriously affect the purposes for which the project was authorized, 
surveyed, planned, or constructed,'' 43 U.S.C. 390b(e). The 
interpretation of the WSA authority to include storage for water supply 
in multipurpose Corps reservoir projects, including projects that are 
authorized, constructed, and operated as part of a system, is in 
conformity with the Corps' practice in implementing the WSA since 1958 
and with opinions of the Corps' Chief Counsel.
(b) Definition of ``Water Supply,'' ``Municipal or Industrial Water'' 
and ``Municipal and Industrial Water Supply''
    The WSA specifically authorizes the Corps to include storage to 
meet demands for ``municipal or industrial water,'' by including 
``municipal and industrial water supply storage'' in its reservoirs. 
These terms and the term ``water supply'' itself are not defined in the 
WSA or in existing Corps guidance. The Corps proposes to define the 
terms ``water supply,'' ``municipal or industrial water,'' and 
``municipal and industrial water supply'' for purposes of the WSA 
broadly to encompass all uses of water under an applicable water rights 
allocation system, other than irrigation uses as provided under 43 
U.S.C. 390. This definition is consistent with the proposed definition 
of ``domestic and industrial uses'' for purposes of Section 6, and with 
generally accepted definitions of water supply.\27\ It has additional 
support in the declaration of Congressional policy in the WSA that the 
Corps should cooperate with State and local interests ``in developing 
water supplies for domestic, municipal, industrial, and other 
purposes,'' 43 U.S.C. 390b(a). This statement evinces Congressional 
intent that the Corps should work collaboratively with State and local 
interests to make storage available for a broad range of water supply 
needs, and generally recognizes that the Corps does not allocate water 
rights or determine what beneficial uses are made of water that is 
withdrawn from its reservoirs.
---------------------------------------------------------------------------

    \27\ See U.S. Geological Survey, National Handbook of 
Recommended Methods for Water Data Acquisition, Ch. 11, sec. 11.C, 
``Public Water Supply,'' available at http://pubs.usgs.gov/chapter11/chapter11C.html (citing Standard Industrial Classification 
(SIC) code 4941); see also U.S. Geological Survey, National Handbook 
of Recommended Methods for Water Data Acquisition, Ch. 11, sec. 11.C 
(defining ``public water supply'' to include water delivered by 
public and private suppliers ``to domestic, commercial, and 
industrial users, to facilities generating thermoelectric power, for 
public use, and occasionally for mining and irrigation'').
---------------------------------------------------------------------------

    As with the proposed definition of ``domestic and industrial uses'' 
under Section 6, the proposed definition of ``water supply,'' 
``municipal or industrial water,'' and ``municipal and industrial water 
supply'' under the WSA excludes irrigation uses provided for under 43 
U.S.C. 390, but does not foreclose all agricultural, commercial, or 
other uses that may be made of water withdrawn from Corps reservoirs. 
In this respect, the proposed definition recognizes the fact that 
Congress has placed the responsibility for delivery of irrigation water 
through federal facilities with the Department of the Interior through 
the federal reclamation laws. Further, the Corps typically enters into 
water supply storage agreements with public or private water suppliers, 
not with individuals or private corporations, and those water 
suppliers, not the Corps, treat and distribute the water withdrawn from 
Corps reservoirs to multiple users. The Corps does not regulate the end 
uses of that water, after it has been withdrawn from the Corps 
reservoir, and some agricultural water uses may be accommodated from 
public water supplies, without the construction of federal irrigation 
works. It is reasonable to conclude that some agricultural uses can be 
accommodated under the WSA within the definition of ``municipal and 
industrial water supply,'' provided that direct irrigation withdrawals 
that could be satisfied through authorized irrigation works of the 
Department of the Interior, or through an interim allocation of 
irrigation storage by the Corps, pursuant to 43 U.S.C. 390, are 
excluded from the definition of ``municipal and industrial water 
supply'' under the WSA. This ensures that the Corps' exercise of its 
authority under the WSA, like its exercise of its authority under 
Section 6, will not interfere with other federal authorities that 
specifically address irrigation uses.
(c) Meaning of the Phrase ``Storage May Be Included'' for Water Supply
    The WSA authorizes the Secretary of the Army to add water supply as 
a purpose of a Corps project by providing that ``storage may be 
included in any reservoir project surveyed, planned, constructed, or to 
be planned, surveyed, and/or constructed'' by the Corps. The proposed 
rule would clarify and codify the Corps' longstanding interpretation of 
the term ``storage may be included'' to reflect the broad latitude that 
Congress afforded the Department of the Army to accommodate water 
supply needs through the planning, construction and operation of Corps 
reservoir projects, making water supply an authorized project purpose. 
Congress understood that storage could be made available for water 
supply at different stages of the development of a Corps reservoir 
project, and in different ways: By modifying the plans for an as-yet 
unconstructed project; by changing the physical structure of an 
existing project; or by changing the operations of an existing project. 
The term ``included'' encompasses all of these possibilities, and thus, 
both structural changes and operational changes to include water supply 
are expressly contemplated in the text of the WSA.
    When the Corps evaluates a water supply request and determines that 
it can accommodate the request, the Corps considers operational changes 
that may be necessary, and determines an amount of storage that must be 
included in the reservoir in order to yield the amount of water to be 
withdrawn. This evaluation takes into account projected hydrologic 
conditions over a lengthy period of analysis, including projected 
inflows and losses from all sources, as well as other constraints such 
as flow requirements for water quality or other authorized purposes 
during that period. See ER 1105-2-100, app. E at E-225, tab. E-31 n.2; 
Engineer Manual (EM) 1110-2-1420, Hydrologic Engineering Requirements 
for Reservoirs (Oct. 31, 1997) Sec. Sec.  11-2, 12-13. The storage 
necessary to yield the requested water supply withdrawals may be 
included either by adding additional storage capacity, or by changing 
operations to

[[Page 91576]]

utilize existing storage differently. When water supply needs are 
accommodated under the WSA through operational changes, without 
structural modifications--that is, when the existing storage is used 
differently to accommodate new or additional water supply withdrawals--
the Corps refers to this action as ``reallocating'' storage to water 
supply, either from storage that was previously designated for a 
particular purpose, or from a multipurpose, conservation storage pool 
that serves multiple purposes. The Corps uses the term ``reallocation'' 
to reflect the fact that storage will be used differently, and that 
costs associated with that storage, including operational costs, will 
be reallocated to water supply, and borne by the water supply user.
    Thus, the proposed rule would clarify that the authority to 
``include'' storage in a Corps reservoir under the WSA means making 
storage available for water supply by modifying the plans for an as-yet 
unconstructed project; by changing the physical structure of an 
existing project; or by changing the operations of an existing project. 
Whether an amount of storage is physically added for water supply, or 
is reallocated from within existing storage for water supply, the 
amount of storage included for water supply reflects the Corps' 
technical, engineering judgment that the reservoir project, as 
modified, can satisfy the projected water supply withdrawals during 
reasonably foreseeable circumstances. The inclusion of storage does not 
guarantee that water will actually be available to meet a given need at 
all times (since, for example, droughts more severe than the worst on 
record could occur). But the amount of storage included for water 
supply is intended, consistent with the design concept of a reservoir, 
to provide a dependable water supply, based on available information 
and reasonable projections of future conditions. The amount of storage 
included for water supply should be sufficient to yield the gross 
amount of water to be withdrawn or released, which also approximates 
the water supply benefit being afforded--the reference point for 
allocating project costs to water supply under the WSA.
    When including storage under the WSA, the Corps does not determine 
how water supply needs should be satisfied within a region, allocate 
water rights, or sell water. Nor does the Corps take on the role of a 
water distributer, treating or actually delivering water through 
federal facilities to end users. Instead, the Corps facilitates the 
efforts of States and local interests to develop their own water 
supplies through nonfederal conveyance systems, in connection with the 
operation of a Corps reservoir project. Under the WSA, the Corps has 
broad discretion to make structural or operational changes to a Corps 
reservoir, in order to facilitate water supply uses of reservoir 
storage (subject to the limitations within the WSA, and compliance with 
other applicable laws and regulations). The proposed definition of the 
statutory phrase ``storage may be included'' for water supply makes 
clear that the Corps' role under the WSA is limited to making storage 
available in its reservoir projects, not constructing or operating 
water treatment or delivery systems, or obtaining water rights or 
permits on behalf of water supply users. It remains the sole 
responsibility of the water supply users to withdraw, treat, and 
deliver water from a Corps reservoir to end users, and to obtain 
whatever water rights may be required under State law.
(d) Determining the Cost of Including Storage for Water Supply
    The WSA requires, as a condition of including storage to make water 
supply an authorized purpose of a Corps reservoir, that State or local 
interests must agree to pay for ``the cost of any [such] construction 
or modification,'' and that such cost ``shall be determined on the 
basis that all authorized purposes served by the project shall share 
equitably in the benefits of multiple purpose construction, as 
determined by the Secretary of the Army.'' The WSA enables users to 
repay the initial cost of including storage over a period of up to 
thirty years, with interest, and also requires payment of all 
operation, maintenance, and replacement costs allocated to water supply 
on an annual basis.\28\ To effectuate these statutory requirements, 
Corps policy currently provides that entities contracting for the use 
of storage space in a Corps reservoir under the WSA must pay a share of 
project costs allocated to water supply, as well as a share of annual, 
joint-use operation, maintenance, repair, rehabilitation, and 
replacement costs (OMRR&R) for the project. ER 1105-2-100, app. E at E-
201 to E-202. The Corps' existing guidance for determining an 
appropriate share of allocated project costs, including an annual share 
of OMRR&R, varies depending upon the method by which storage is to be 
included for water supply.
---------------------------------------------------------------------------

    \28\ 43 U.S.C. 390b(b). As originally enacted, the WSA allowed 
the cost of water supply storage to be repaid over a period of up to 
fifty years, but for Corps of Engineers projects, this repayment 
period was later reduced to thirty years. See Water Resources 
Development Act of 1986, Public Law 99-662, Title IX, Sec.  932(a), 
100 Stat. 4196 (Nov. 17, 1986). See also Water Resources Reform and 
Development Act of 2014, Public Law 113-121, 1046(b) (June 10, 2014) 
(providing for notification, before each fiscal year, to non-Federal 
interests of estimated operation and maintenance expenses for that 
fiscal year and each of the subsequent four fiscal years).
---------------------------------------------------------------------------

    Where water supply is included in the plans for a reservoir prior 
to construction of that reservoir, the Corps employs the separable 
cost-remaining benefit (SCRB) method of cost allocation to determine 
the share of project costs allocated to water supply. This methodology 
allocates to each purpose included in a project its separable costs, 
which are the incremental costs associated with including that purpose 
in the project, as well as a share of the residual or remaining joint 
costs, which are equitably apportioned among all purposes in proportion 
to the share of overall project benefits that are expected to be 
realized for each purpose. ER 1105-2-100, app. E, app. E at E-239. 
Thus, a water supply user is required to pay all separable water supply 
costs (including any direct or specific costs due to water supply 
features), plus a share of the remaining, joint costs of the project. 
Water supply users are also required to pay a proportional share of 
annual OMRR&R costs thereafter. See id. at E-201, E-212, E-217-218, E-
242, E-246-249.
    Where water supply storage is added to an existing project through 
structural modifications, the non-federal sponsor is responsible for 
the direct costs of those modifications. In addition, current Corps 
regulations employ a willingness-to-pay concept, requiring the water 
supply user to pay an amount equal to fifty percent of the savings 
compared to the cost of the most likely alternative that could service 
the water supply need, in lieu of the proposed modification to the 
Corps reservoir.\29\ The user is also required to pay a proportional 
share of annual OMRR&R costs. ER 1105-2-100 at 3-34, App. E at E-222 to 
E-223.
---------------------------------------------------------------------------

    \29\ The Corps has identified only one instance in which it made 
a structural modification to an existing reservoir project under the 
WSA applying this cost-sharing concept. That modification for water 
supply was made in connection with modifications for ecosystem 
restoration at an existing project, and the project modifications 
and the Chief of Engineer's recommendations were specifically 
approved by Congress.
---------------------------------------------------------------------------

    In cases where existing storage is to be used for water supply 
instead of for some purpose for which it was previously used, and no 
construction or structural modifications are necessary in order to 
include storage--i.e., when existing storage is reallocated to water

[[Page 91577]]

supply, without constructing new storage--the Corps determines the cost 
of storage based on the higher of benefits or revenues foregone, or the 
updated cost of storage. Revenues foregone consist of actual reductions 
in revenues to the U.S. Treasury as a result of the proposed action. 
Benefits foregone reflect any other reductions in benefits that would 
result from the proposed action, as evaluated in accordance with 
applicable evaluation criteria.\30\ The updated cost of storage 
consists of a share of the original construction costs, in proportion 
to the percent of usable storage reallocated to water supply, updated 
to present day price levels. The water supply user also is responsible 
for paying the same proportional share of annual OMRR&R expenses.\31\
---------------------------------------------------------------------------

    \30\ The currently applicable criteria are set forth in Economic 
and Environmental Principles and Guidelines for Water and Related 
Land Resources Implementation Studies (March 10, 1983), available at 
http://planning.usace.army.mil/toolbox/library/Guidance/Principles_Guidelines.pdf.
    \31\ See ER 1105-2-100, app. E at E-216 to E-218. The Corps' 
current guidance lists ``replacement costs,'' in addition to 
benefits foregone, revenues foregone, and updated cost of storage, 
as an additional consideration when determining a price of 
reallocated storage. Id. at E-216 (cost of reallocated water supply 
storage ``will normally be established as the highest of the 
benefits or revenues foregone, the replacement cost, or the updated 
cost of storage in the Federal project.''). Replacement costs as a 
possible component of revenues or benefits foregone were noted in 
earlier Corps guidance (ER 1165-2-105, Change 15 (March 1, 1977), ] 
11.d(1)(a)), but appear to have inadvertently been broken out as a 
separate category in the Corps' more recent guidance. As noted in 
the current ER 1105-2-100, replacement costs, to the extent they 
could be associated with a reallocation of storage within the Corps' 
discretionary authority at all, would normally be captured within a 
benefits or revenues foregone analysis. Generally, the updated cost 
of storage represents the highest of these costs in any event, and 
therefore serves as the basis for pricing reallocated storage. 
Accordingly, as a matter of clarification, the proposed regulations 
would only reference benefits foregone, revenues foregone, and 
updated cost of storage. To the extent any replacement costs would 
be incurred, those costs would be captured in the Corps' analysis, 
consistent with current guidance and practice.
---------------------------------------------------------------------------

    As a general matter, the Corps considers each of these historically 
utilized cost methodologies to be a reasonable way of allocating costs 
to a modification to include storage for water supply under the WSA, 
consistent with the principle stated in the text of the WSA that 
project costs should be allocated equitably among the authorized 
purposes in proportion to the benefits received, and consistent with 
standard evaluation criteria used for federal water resource 
development projects. Accordingly, the Corps is not proposing changes 
to these methodologies for allocating costs to water supply storage 
under the WSA, and would carry them forward in the proposed rule. At 
the same time, the Corps acknowledges that it is engaged in continuing 
discussions with federal PMAs regarding how some of the methodologies 
are applied in determining the federal hydropower impacts (revenues and 
benefits foregone) associated with a water supply storage reallocation. 
The Corps further recognizes the important role that PMAs perform in 
marketing and distributing hydroelectric power that is generated at 
Corps reservoir projects, and continuing cooperation between the 
agencies with respect to the operation of Corps projects for 
hydropower. Therefore, the proposed rule would expressly provide that 
whenever the Corps proposes to include storage for water supply under 
the WSA at a reservoir project (or system of projects, if authorized as 
a system) that has federal hydropower as an authorized purpose, the 
Corps will coordinate that proposal in advance with the PMA that is 
responsible for marketing that federal power. The Corps will utilize in 
its determinations any information provided by the PMA, including its 
evaluation of hydropower impacts and cost information regarding 
revenues foregone and replacement power costs, in determining the 
impacts of the proposed action, and the cost of storage to be charged 
to the prospective water supply user. The proposed rule would not 
address or affect the rates that PMAs may establish for hydroelectric 
power, nor any credits that might apply to the hydropower purpose for 
revenues foregone and replacement power costs, as those determinations 
are made through separate administrative processes.
    The Corps solicits comments on the proposal to adopt its existing 
WSA pricing methodology in this proposed rule. Additionally, the Corps 
solicits comments on whether the Corps should collect data related to 
the cost of providing water supply storage, including the market price 
as defined in OMB Circular A-25 Revised, or the opportunity cost of 
making storage available for water supply, and whether the Corps should 
include the market price of water supply storage as an alternative 
pricing metric. The Corps' current pricing policy for water supply 
storage under the WSA takes into account revenues and benefits 
foregone, the cost of constructing reservoir storage, and the costs of 
operating and maintaining storage reservoirs. Consideration of 
alternative pricing methodologies, incorporating the market price of 
water supply storage or the opportunity costs associated with water 
supply storage, would require collection of additional data. Therefore, 
the Corps invites comments on whether it should collect such data and 
take that into account in determining the cost of storage under the 
WSA.
(e) Limitations on Authority To Modify Projects To Include Water Supply 
Storage
    The WSA authorizes the Secretary of the Army to make changes to the 
plans, structure, or operations of authorized reservoir projects for 
the purpose of including water supply storage. Inherently, such changes 
could affect other authorized project purposes. That was a key purpose 
of enacting the WSA, as earlier law, including Section 6, did not 
authorize the inclusion of water supply as a purpose at the expense of 
other authorized purposes, once a project was constructed. Congress 
intended to confer a ``more comprehensive authority'' to include water 
supply storage by enacting the WSA, and delegated to the Secretary the 
discretion necessary to effectuate such changes, unless the effects on 
authorized purposes would be ``serious,'' or the degree of structural 
or operational changes would be ``major'': \32\
---------------------------------------------------------------------------

    \32\ See 2012 Chief Counsel Legal Opinion at 34-35 & n. 151 
(citing H. Rep. No. 85-1122, at 77 (1957)).

    (e) Approval of Congress of modifications of reservoir projects. 
Modifications of a reservoir project heretofore authorized, 
surveyed, planned, or constructed to include storage . . . which 
would seriously affect the purposes for which the project was 
authorized, surveyed, planned, or constructed, or which would 
involve major structural or operational changes shall be made only 
---------------------------------------------------------------------------
upon the approval of Congress as now provided by law.

WSA Sec.  301(d), 43 U.S.C. 390b(e) (emphasis added).

    The meanings of the key statutory terms ``seriously'' and ``major'' 
are not defined in the text of the WSA, and the Corps has never 
promulgated formal regulations interpreting the limitations included in 
this section. Past policy guidance documents have at times referred to 
amounts and percentages of usable storage as thresholds for internal, 
delegated approval authority under the WSA. For example, guidance 
developed in the mid-1970s indicated that reallocations of less than 
50,000 acre-feet or 15 percent of storage ``are considered 
insignificant'' and do not require Congressional authorization; but 
that guidance did not address whether reallocations exceeding those 
thresholds would require Congressional

[[Page 91578]]

authorization, or how that determination would be made. See EM 1165-2-
105, Water Supply Storage in Corps of Engineers' Projects (18 Sept. 
1961), Change 15, para. 11.e (1 Mar 77)). Current Corps guidance still 
does not define what constitutes a ``major'' change or a ``serious'' 
effect on an authorized purpose, such that Congressional approval would 
be required. ER 1105-2-100 states only that the Assistant Secretary of 
the Army (Civil Works) has delegated authority to the Chief of 
Engineers to approve reallocations of up to 50,000 acre-feet or 15 
percent of the ``total storage capacity allotted to all authorized 
purposes,'' and reallocation of lesser amounts are further delegated 
within the Corps, provided that the criteria of ``major structural or 
operational changes'' and ``severe [sic] effect[s] on other authorized 
purposes'' are not violated; but the Assistant Secretary retains 
authority to approve reallocations of greater amounts of storage, 
again, subject to the (undefined) statutory criteria. See ER 1105-2-100 
at E-215 to E-216.
    The Corps' current interpretation of the meaning of the terms 
``seriously affect [authorized] purposes'' and ``major structural or 
operational changes'' has been set forth in two recent legal opinions 
issued by the Corps' Chief Counsel in 2009 and 2012. See Earl H. 
Stockdale, Chief Counsel to the Chief of Engineers, Subject: Authority 
to Reallocate Storage for Municipal & Industrial Water Supply under the 
Water Supply Act of 1958 at 7 (Jan. 9, 2009) (2009 Chief Counsel Legal 
Opinion); 2012 Chief Counsel Legal Opinion. In those opinions, the 
Chief Counsel examined the statutory language and Congressional intent 
behind those phrases, and concluded that Congress intended to confer 
broad authority on the Corps to modify reservoir projects to include 
storage for water supply, so long as the changes did not fundamentally 
depart from Congressional intent in authorizing the construction and 
operation of the project for other purposes. As those legal opinions 
explain, when Congress authorizes a Corps project for construction, it 
does so based on an understanding of the Corps' proposal for the 
construction and operation of the project, and of the purposes that the 
project would serve. These proposals, set forth in reports of the Chief 
of Engineers, are incorporated into the authorizing legislation for a 
project, and serve to define the ``authorized purposes'' of the 
project. See, e.g., In re MDL-1824 Tri-State Water Rights Litig., 644 
F.3d at 1187; 2012 Chief Counsel Legal Opinion at 10. Longstanding 
Congressional understanding, legal opinions, and caselaw have 
established that while the Corps has considerable discretion to 
exercise its engineering judgment to design and operate its projects, 
the Corps may not add or delete an authorized project purpose, nor 
materially alter the relative importance of authorized purposes, 
without the approval of Congress. See Environmental Defense Fund v. 
Alexander, 467 F. Supp. 885, 900-02 (D. Miss. 1979) (citing Report on 
the Civil Functions Program of the Corps of Engineers, United States 
Army, 82d Cong., 2d Sess. 1 (1952), and legal opinions of the Corps' 
General Counsel).
    However, beyond this long-recognized, general discretion to adjust 
the design and operations of Corps projects for their authorized 
purposes, the WSA specifically authorizes the Corps to make structural 
or operational changes to include water supply as a new or expanded 
purpose, and to affect existing, authorized project purposes in so 
doing. Congress did not delegate to the Corps the authority to abandon 
the original, Congressionally-approved purposes of a project in favor 
of water supply, but Congress also did not set specific, numerical 
limits on the Corps' discretion to add water supply at the partial 
expense of other authorized purposes, or otherwise define the terms 
``major'' and ``serious.'' Instead, Congress left the evaluation of 
what constitutes a ``major structural or operational change,'' or a 
``serious'' effect upon an authorized purpose, to the judgment of the 
Corps. The Corps' definitive interpretation of those statutory terms is 
that they require the Corps, in each instance where it considers 
including storage for water supply, to consider whether any necessary 
structural or operational changes, and the effect of such changes on 
authorized purposes, would fundamentally depart from what Congress 
intended when it authorized the project for construction. The 
touchstone for this analysis depends in each case upon the specific 
legislation by which Congress authorized the project in question, and 
the expectations with regard to the project's purposes, design, and 
operations, that are set forth in the reports and other documents that 
Congress incorporated or approved in the authorizing legislation. Under 
the proposed rule, the governing standard for determining whether 
proposed changes ``would seriously affect the purposes for which the 
project was authorized, surveyed, planned or constructed,'' or 
``involve major structural or operational changes,'' would be whether 
the proposed changes would fundamentally depart from what Congress 
expected when it approved the reports and authorized the project for 
construction. Modifications that cross this threshold would interfere 
with legislative prerogatives, and would require Congressional 
approval.
    The Corps is not proposing in this rule to adopt fixed percentages 
or amounts of storage as threshold amounts as a per se rule for 
determining whether a proposed modification involves ``serious'' 
effects or ``major'' changes, for several reasons. First, it is unclear 
on what basis numerical thresholds could be established, and whether 
the same thresholds would make sense universally, given the wide 
disparities in the size and function of Corps multipurpose reservoirs 
nationwide. Earlier Corps guidance that indicated that reallocations of 
less than 15 percent or 50,000 acre-foot threshold would be considered 
per se insignificant, and therefore within the Corps' authority, was 
apparently based upon the fact that prior to that date, no 
discretionary reallocation exceeding those amounts had been carried out 
by the Corps. See 2009 Chief Counsel Legal Opinion at 7; 2012 Chief 
Counsel Legal Opinion at 38 n. 166. That guidance did not explain what 
analysis had gone into the prior reallocation decisions, or indicate 
how future reallocations should be evaluated with respect to the WSA 
limitations.
    Second, the Corps' past statements regarding 15 percent or 50,000 
acre-foot thresholds have often been misunderstood and misapplied in a 
manner that calls into question the usefulness of such thresholds. As 
noted, the previous guidance stating that reallocations below those 
amounts are insignificant has been misread to suggest that 
reallocations above those amounts are significant, and therefore 
``major'' or ``serious.'' The Corps' current ER 1105-2-100 makes 
neither determination, but does reference a delegation of authority, 
from the Assistant Secretary of the Army (Civil Works) to the Chief of 
Engineers and below, for reallocations not exceeding 15 percent of 
total usable storage, or 50,000 acre-feet, ``provided that the 
[statutory] criteria are not violated.'' That delegation threshold, 
which is plainly not a determination of the statutory criteria (which 
apply above or below that threshold), has been misinterpreted 
frequently enough that the Corps' Civil Works Directorate found it 
necessary to issue further guidance in 2007 clarifying that the

[[Page 91579]]

delegation threshold is not a requirement for Congressional 
approval.\33\ And a U.S. Court of Appeals decision, while not applying 
the ER 1105-2-100 threshold specifically, concluded that a particular, 
proposed reallocation of storage at one Corps reservoir constituted a 
``major operational change'' based on the Court's findings regarding 
the percent of storage reallocated, but the decision itself cited 
multiple, conflicting figures to describe the percentage at issue, and 
did not relate that percent or amount of storage to any actual 
structural or operational changes, or any effects on authorized 
purposes.\34\ A percentage limitation, particularly if misconstrued or 
misapplied, could result in arbitrary limits on the authority Congress 
intended to confer under the WSA.
---------------------------------------------------------------------------

    \33\ See Thomas W. Waters, Chief, Policy and Policy Compliance 
Division, Directorate of Civil Works, Headquarters, U.S. Army Corps 
of Engineers, Memorandum, Subject: Water Supply Reallocation Policy 
(August 30, 2007) (on file); see also In re MDL-1824 Tri-State Water 
Rights Litigation, 644 F.3d 1160, 1173 n.9 (11th Cir. 2011) 
(``Internal policies required the Corps to obtain the approval of 
the Secretary of the Army for all storage allocations exceeding 15% 
of total storage capacity or 50,000 acre-feet, whichever is less. 
The parties have not made this Court aware of any internal 
regulations that set a threshold for allocations above which 
Congressional approval is required.'').
    \34\ See Southeastern Federal Power Customers, Inc. v. Geren, 
514 F.3d 1316 (D.C. Cir. 2008). In that case, which was subsequently 
remanded, consolidated, and resolved by the Eleventh Circuit's 
decision in the case In re MDL-1824 Tri-State Water Rights 
Litigation, 644 F.3d 1160 (11th Cir. 2011), the U.S. Court of 
Appeals for the District of Columbia Circuit issued an opinion 
concluding that a settlement agreement that would have allocated 
240,878 acre-feet in the Corps' Lake Lanier project would have 
involved a ``major operational change'' requiring Congressional 
approval under the WSA. However, the D.C. Circuit opinion 
alternately describing the 240,878 figure as comprising 22 or 22.9 
percent of ``total storage'' in Lake Lanier, and a 9 percent 
increase over storage previously used for water supply, whereas 
240,878 acre-feet actually comprises just 12.6 percent of the 
2,554,000 total acre-feet of storage in Lake Lanier. Nothing in the 
D.C. Circuit opinion indicates why any of these figures would 
generally constitute ``serious'' effects or ``major'' changes within 
the meaning of the WSA. See 2012 Chief Counsel Legal Opinion at 18-
19 & n. 72, 36-38 & nn. 164, 166.
---------------------------------------------------------------------------

    Finally, it is significant that Congress has enacted fixed, 
numerical limitations for some purposes, including estimated costs 
allocated to future water supply under the WSA, but chose not to 
establish such numerical limitations to define the bounds of the 
Secretary's authority to make structural or operational changes or 
affect authorized purposes when including storage under the WSA.\35\ 
Instead, Congress limited the Corps' authority to effects that are not 
``serious,'' and changes that are not ``major,'' and left it to the 
Corps' discretion to interpret those terms, in light of Congressional 
intent, and the particular circumstances involved. In summary, the 
Corps has never issued guidance or adopted an absolute rule that 
allocations of storage in amounts greater than 15 percent of total 
storage or 50,000 acre-feet, or any other specific amounts, would 
result in serious effects to authorized purposes, or involve major 
structural or operational changes. Rather, such determinations have 
been made based upon technical and legal analysis of the particular 
circumstances involved, in light of Congressional intent as expressed 
in the original authorizing legislation and subsequent statutory 
enactments relevant to that project or system of projects. The relevant 
inquiry would include an assessment of what structural and operational 
changes would actually be involved, how these changes would affect 
authorized purposes, and the extent to which these changes and their 
effects depart from Congressional understandings when Congress 
authorized the project or system of projects involved. A simple amount 
or percent of storage may not be dispositive of any of these 
considerations.
---------------------------------------------------------------------------

    \35\ The WSA expressly limits the share of total estimated cost 
of any project that can be allocated to anticipated future water 
supply demands to 30 percent. WSA Sec.  301(b), 43 U.S.C. 390b(b).
---------------------------------------------------------------------------

    Therefore, the proposed rule would, consistent with the Corps' 
legal opinions, interpret the statutory terms ``major'' and 
``seriously'' in Sec.  390b(e) to mean changes and impacts that 
fundamentally depart from Congressional intent for the particular 
reservoir project, as expressed through the authorizing legislation 
relevant to that project. If a project was authorized as part of a 
system of improvements, to achieve multiple purposes throughout that 
system, Congressional intent regarding the authorized purposes must be 
interpreted in this light. With respect to effects on authorized 
purposes, the Corps would need to consider, in light of the factual 
circumstances and the project authorizing documents, whether a proposed 
action would adversely affect any authorized purpose of the project, by 
materially diminishing the benefits that Congress expected to be 
realized in connection with that purposes. With respect to major 
structural or operational changes, the Corps would have to consider the 
degree of change from both a technical and a legal perspective, in 
light of project operations and Congressional intent for the project in 
question. The proposed rule would require that the Corps undertake both 
legal and technical analysis to determine whether a proposed storage 
reallocation constitutes a ``major structural or operational change'' 
and whether it ``seriously affects'' an authorized purpose of that 
project.
    The Corps invites comments on the proposed interpretation of the 
statutory limitations on modifications that would ``seriously affect'' 
authorized purposes or involve ``major structural or operational 
changes.'' We also invite comments on whether it may be appropriate to 
adopt in the proposed rule a maximum threshold percentage or amount of 
storage that may be reallocated within the limits stipulated by the 
WSA.
    For a project (or a system of projects, if authorized as a system) 
that has federal hydropower as an authorized purpose, the Corps 
recognizes the important role that PMAs perform in marketing and 
distributing hydroelectric power that is generated at Corps reservoir 
projects, and the need for continuing cooperation between the agencies 
with respect to the operation of Corps projects for hydropower. 
Therefore, the proposed rule would expressly provide that whenever the 
Corps proposes to include storage for water supply under the WSA at a 
reservoir project (or system of projects, if authorized as a system) 
that has federal hydropower as an authorized purpose, the Corps will 
coordinate that proposal in advance with the PMA that is responsible 
for marketing the federal power from the project. The Corps will 
utilize in its determinations any information provided by the PMA, 
including its evaluation and determination of the impacts to the 
hydropower purpose (revenues and benefits foregone), in determining 
whether those impacts would ``seriously affect'' the hydropower purpose 
or involve a ``major structural or operational change'' under the WSA. 
The proposed rule would not address or affect the rates that PMAs may 
establish for hydroelectric power, nor any credits that might apply to 
the hydropower purpose for revenues foregone and replacement power 
costs, as those determinations are made through separate administrative 
processes.
    In cases where the Corps operates its reservoirs in coordination 
with the U.S. Department of Interior, Bureau of Reclamation 
(Reclamation) reservoirs or projects on the same river system, it is 
understood that whenever the Corps proposes to include storage for 
water supply under the WSA at a reservoir project or system of 
projects, the Corps will coordinate its evaluation of that proposal 
with Reclamation, and consider relevant information provided by 
Reclamation, including potential

[[Page 91580]]

impacts on coordinated or co-managed reservoir operations.
(f) Storage Accounting, ``Return Flows,'' and Water Supply Storage 
Agreements
    The Corps acknowledges that important questions have been raised 
regarding how much water may be withdrawn under many existing WSA water 
supply storage agreements and the relationship of ``return flows'' or 
other inflows to those withdrawals. Generally, the Corps' WSA storage 
agreements authorize the use of a particular amount of reservoir 
storage, sufficient to provide a firm or dependable yield during 
drought, but without specifying how much water may be withdrawn 
pursuant to the agreement under different hydrologic conditions, and 
without addressing return flows. This practice is consistent with the 
Corps' authority to include storage as an authorized purpose under the 
WSA, recognizing that reservoir storage is used for multiple authorized 
purposes, and that storage yields, project operations, and water supply 
withdrawal amounts can change over time. Without a clear methodology 
for determining how much water may be withdrawn under the agreement, 
however, this has led some to question the extent of withdrawals that 
are occurring, or to propose different methods of accounting for 
storage use. When broader disputes have arisen over water uses in a 
multistate river basin, for example in the ACT-ACF basins, some water 
supply users have requested that WSA agreements provide ``credit'' for 
return flows, or other ``made inflows'' directed into a reservoir by a 
particular entity from a source outside the reservoir. These users 
maintain that such flows should be credited to the water supply users 
who provide the flows, either in the sense of including less storage 
than would otherwise be required for the projected withdrawals, or in 
the sense of increasing the yield of storage previously included for 
water supply. They contend that crediting return flows could provide 
incentives for greater water conservation, as water returned to the 
reservoirs could enhance water supply use. Others have objected to 
``crediting'' return flows or other inflows to particular water supply 
users, fearing that doing so could impinge upon project purposes or 
other users' rights. The parties expressing views on these matters have 
all desired greater certainty with regard to how the Corps accounts for 
water supply storage usage in its reservoirs.
    The Corps does not have a universal policy or practice regarding 
return flows or the accounting of storage use under water supply 
storage agreements (``storage accounting''). Generally, the Corps has 
based its WSA storage agreements upon an amount of storage expected to 
yield the gross amount of water to be withdrawn or released, without 
clearly addressing the relationship of return flows to the use of 
storage allocated to water supply, and without specifying how storage 
availability and usage are to be measured over time. In some cases, 
Corps Districts have developed storage accounting systems that treat 
water supply storage allocations as ``accounts,'' and attribute a share 
of all inflows to and losses from the reservoir to each account, in 
proportion to each account's share of storage in the reservoir. Under 
such accounting systems, water supply withdrawals by an individual 
water supply user are charged fully and directly to that user's water 
supply storage account; but return flows or other inflows, regardless 
of their source, are credited to each user's account in proportion to 
the amount of storage allocated to that account. Under these accounting 
systems, return flows are not reserved or credited fully to specific 
users' accounts; but to the extent that return flows are provided, they 
increase the amount of water available in the reservoir for all users 
and purposes, including water supply. In accounting for flows in this 
manner, the Corps is not determining beneficial use rights to any 
water--as that is a prerogative of the States--but rather, is 
accounting for the use of storage in a Corps reservoir.
    This practice is consistent with the Corps' operation of its 
reservoir projects for multiple purposes, in which ``commingled or 
joint-use conservation storage'' is typically used to achieve multiple 
purposes simultaneously, ``with operational criteria to maximize the 
complementary effects and minimize the competitive effects'' of the 
different purposes, providing greater operational flexibility and 
better service for all purposes.\36\
---------------------------------------------------------------------------

    \36\ Engineer Manual (EM) 1110-2-1420, Hydrologic Engineering 
Requirements for Reservoirs at 2-2, 3-2 (Oct. 31, 1997). These 
operations are recorded in water control plans and manuals that are 
developed in concert with potentially affected interests, with 
public participation, and which are revised as necessary to conform 
to changing conditions and requirements. See 33 U.S.C. 709; 33 CFR 
222.5(f); Engineer Regulation (ER) 1110-2-240, Water Control 
Management (May 30, 2016). See also South Dakota v. Ubbelohde, 330 
F.3d 1014, 1018, 1027-28 (8th Cir. 2003) (in carrying out statutory 
charge to manage Missouri River reservoirs, ``the Corps must strike 
a balance among many interests, including flood control, navigation, 
and recreation''); Earl H. Stockdale, Chief Counsel, Memorandum for 
the Chief of Engineers, Subject: Authority to Provide for Municipal 
and Industrial Water Supply from the Buford Dam/Lake Lanier Project, 
Georgia at 28 (June 25, 2012) (``2012 Chief Counsel Legal 
Opinion'').
---------------------------------------------------------------------------

    The Corps recognizes, however, that return flows and other made 
inflows are important to consider in connection with water supply 
storage. As explained in the 2012 Chief Counsel's Legal Opinion, return 
flows, to the extent they occur, are relevant to the Corps' authority 
to accommodate a proposed request for water supply storage under the 
WSA, because both withdrawals and returns, like all other inflows and 
losses, affect operations for authorized purposes. To the extent that 
they can be ascertained and are reasonably foreseeable, these impacts 
must be considered for the purpose of determining the agency's 
authority to accommodate the request, as well as to evaluate 
environmental impacts as required by NEPA. Thus, when evaluating a 
request to make water supply withdrawals from a reservoir, the amount, 
if any, of return flows associated with that request must be taken into 
account. See 2012 Chief Counsel Legal Opinion at 37-38. In addition, 
the Corps recognizes that State systems for administering water rights 
may address return flows or other inflows in different ways, that 
interstate Compacts, equitable apportionments, or other acts of 
Congress may allocate flows to specific entities, and that it must 
adapt its operations for federal purposes to effectuate water 
allocation formulas developed under such authorities, in accordance 
with Congressional intent.\37\ However, because the Corps does not 
determine or allocate water rights, the Corps has generally refrained 
from adopting storage accounting systems that designate particular 
inflows for the sole use by particular entities, or crediting those 
inflows solely to particular storage accounts. Instead, the Corps has 
considered return flows and other additive inflows in the same manner 
as it considers all inflows to a reservoir: All inflows are assimilated 
into reservoir storage, and, for purposes of the WSA, a user may 
withdraw water

[[Page 91581]]

from its allocated water supply storage, consistent with a State water 
right, so long as water is available within that allocated storage. In 
concept, these practices enable users to fully utilize their State-
recognized water rights by withdrawing water from storage, while also 
ensuring that uses of water supply storage--that is, withdrawals up to 
but not exceeding the actual yield of the reallocated storage, under 
different hydrologic conditions--do not unduly impact the other 
authorized purposes of the project.
---------------------------------------------------------------------------

    \37\ See, e.g., Apalachicola-Chattahoochee-Flint River Basin 
Compact, Public Law 105-104, arts. VII, X, 111 Stat. 2219 (Nov. 20, 
1997) (recording intent of the United States to comply with water 
allocation formula to worked out among the States of the 
Apalachicola-Chattahoochee-Flint River Basin, and exercise 
authorities in a manner consistent with that formula, to the extent 
not in conflict with federal law); see also Water Resources Reform 
and Development Act of 2014, Public Law 113-121, 1051(b)(1) (June 
10, 2014) (expressing the sense of Congress that the Secretary of 
the Army ``should adopt policies and implement procedures for the 
operation of reservoirs of the Corps of Engineers that are 
consistent with interstate water agreements and compacts.'').
---------------------------------------------------------------------------

    The proposed rule would continue and formalize many of these 
general practices, and would include new provisions that would clarify 
and improve the administration of water supply storage agreements, 
while continuing to provide for proportional crediting of made inflows. 
The rule would provide that storage will be included for water supply 
in an amount sufficient to yield the gross amount of water to be 
withdrawn (or released) under projected hydrologic conditions, taking 
into account both the projected withdrawals and the projected return 
flows, if any. Additionally, the rule would require that WSA agreements 
incorporate a storage accounting methodology that will track the use of 
that storage and determine how much water is available for withdrawal 
over time. The proposed rule would not prescribe, in technical detail, 
any specific storage accounting methodology, as it is expected that 
different methodologies may need to be adapted to the particular 
circumstances of each reservoir, or system of reservoirs, where storage 
is included for water supply. However, the rule would specify that any 
storage accounting procedures that are adopted in a Corps WSA storage 
agreement shall be based on the principle that all inflows, regardless 
of source, will be credited to water supply storage accounts in 
proportion to their share of storage in the reservoir. Direct water 
supply withdrawals would continue to be charged to the account of the 
user making the withdrawal. In this manner, water supply storage 
agreements would effectively limit withdrawals to the actual yield of 
the reallocated storage over time, accounting for return flows that 
actually occur, and changing hydrologic conditions. These storage 
accounting practices would be set forth in the proposed water supply 
storage agreement, and in other documents that would be made available 
for public comment prior to including storage under the WSA, providing 
notice to prospective water supply users and all other interested 
parties of the principles that would govern the projected use of water 
supply storage.
    These provisions are intended to make storage accounting practices 
more transparent, and to reduce the possibility of uncertainty or 
dispute over how much water may be withdrawn under WSA storage 
agreements, thereby promoting more efficient administration of such 
agreements, in concert with operations for all other authorized 
purposes. These provisions also reflect the basic principle that the 
Corps does not acquire, adjudicate, or allocate water rights when it 
accommodates water supply uses from its reservoirs; the Corps merely 
makes its reservoir storage space available, based on an estimate of 
the amount of storage necessary to accommodate a gross amount of water 
to be withdrawn or released, taking into account operations for other 
authorized purposes, and hydrologic conditions. This does not preclude 
the ability of a state to determine whether to provide water rights on 
a gross or net basis, and encourages greater water conservation.
    The Corps believes that these proposed policies best reflect the 
water supply benefits that are being provided: The inclusion of storage 
with a sufficient dependable yield to meet a projected water supply 
demand during reasonably foreseeable conditions (such as the drought of 
record), and the use of that storage consistent with project operations 
for authorized federal purposes. The proposed rule would not afford a 
one-to-one credit for return flows to the accounts of particular water 
supply users, but they would ensure that appropriate consideration is 
given to return flows in determining the extent of the Corps' authority 
to accommodate a water supply request and in evaluating the effects of 
accommodating that request. Under the proposed rule, when return flows 
do in fact occur, they would benefit the water supply user, by making 
it even more certain that the user's water supply need will be 
satisfied from the water supply storage that has been included. Thus, 
the proposed rule would provide an incentive under many circumstances 
to conserve water, without disrupting the operation of Corps reservoirs 
for multiple authorized purposes. In declining to give a credit through 
storage accounting to an individual user for return flows that such 
user may provide, the Corps would not deprive that user of any water 
rights under state law, nor create disincentives for water 
conservation; the Corps would merely be ensuring, on terms that would 
be made clear at the outset, that the use of storage for water supply 
pursuant to a WSA agreement would not be disproportionate to the amount 
of storage allocated to water supply.
    In summary, the Corps' proposed policies on storage accounting and 
return flows would take into account return flows when they are 
reasonably projected and do actually occur, provide greater certainty 
for all interested parties as to the amount of withdrawals that may be 
made under the agreement, and would promote more efficient 
administration of water supply storage agreements, in concert with 
operations for all other authorized purposes. The Corps invites 
comments on these proposed policies.
    Additionally, the Corps solicits comment on an alternative approach 
to return flows, in which users would receive full credit for ``made 
inflows.'' Specifically, the Corps solicits comment as to the merits of 
providing that return flows or other ``made inflows,'' defined as 
inflows provided by an entity that could choose whether or not to 
discharge such flows into a Corps reservoir, should be fully credited 
to the water supply storage account holder responsible for such flows, 
provided that the flows can be reliably measured. Under this 
alternative proposal, the proposed rule would be identical in all 
respects, except that instead of receiving proportional credit for made 
inflows (in proportion to a user's share of storage allocated under a 
water supply agreement), the user would receive full credit for made 
inflows. The Corps is not proposing this approach in the draft rule, 
but invites comments on this alternative proposal, including whether 
and under what circumstances it could be appropriate to directly credit 
made inflows.
4. Policies for Complementary Administration of Section 6 and the WSA
    The proposed rule reflects the Corps' view that long-term and 
permanent water supply needs that require the dependability afforded by 
storage should be accommodated by including storage as an authorized 
project purpose, as provided in the WSA. It also reflects the Corps' 
view that Section 6 should be used to address water supply needs 
provisionally, for as long as surplus water is determined to be 
available. This interpretation reflects the different terminology, 
structure, and intent behind Section 6 and the WSA.
    The WSA authorizes the Corps to include water supply storage as a 
purpose of a Corps reservoir project, provided that State or local 
interests agree to pay for the costs allocated to

[[Page 91582]]

that storage. The WSA by its terms does not limit or define the time 
period for which water supply storage may be used, but Congress has 
expressly provided in separate legislation that when State or local 
interests have contributed to or contracted to pay for the cost of 
providing water supply storage space in Corps reservoirs, their use may 
continue during the remaining existence of the facility.\38\
---------------------------------------------------------------------------

    \38\ See Public Law 88-140, Sec.  1-4, 77 Stat. 249 (Oct. 16, 
1963) (codified at 43 U.S.C. 390c-390f), providing that when State 
or local interests have ``contributed to the Government, or . . . 
contracted to pay to the Government over a specified period of 
years, money equivalent to the cost of providing for them water 
storage space at Government-owned dams and reservoirs, constructed 
by the Corps of Engineers,'' those State or local interests may 
continue their use of such storage ``during the existence of the 
facility,'' subject to performance of contractual obligations, 
including annual operation and maintenance payments.
---------------------------------------------------------------------------

    Section 6, by contrast, authorizes the Corps to enter into 
contracts for uses of surplus water, when surplus water is determined 
to be available, and on such terms as the Secretary considers 
reasonable, provided such contracts do not adversely affect then 
existing lawful uses of such water. The proposed rule would define 
``surplus water'' to mean water that may be provisionally available at 
a Corps reservoir, because it is not required during a specified time 
period to accomplish an authorized purpose or purposes of that 
reservoir. Section 6 does not make water supply storage an authorized 
purpose of a project, and the proposed rule would not require users to 
pay for storage.
    Congress provided two separate, discretionary authorities under 
Section 6 and the WSA, and expected the Corps to exercise its 
discretion to use those authorities to accommodate different needs. 
Consistent with that Congressional intent, the Corps' view is that the 
WSA should be used to accommodate long-term water supply needs by 
including storage for that purpose, and Section 6 should be used to 
accommodate water supply needs provisionally, when surplus water is 
available at a Corps reservoir.
    Finally, the proposed rule would clarify that in implementing 
either Section 6 or the WSA, the Corps does not sell water or allocate 
water rights. In taking action pursuant to either statute, the Corps 
will respect State prerogatives regarding allocation of water 
resources, and ensure consistency with any applicable interstate water 
agreements or compacts.

II. Scope of This Proposed Rule

    The proposed rule would apply prospectively to actions that the 
Corps may take at Corps reservoir projects to accommodate uses of 
surplus water pursuant to Section 6 of the Flood Control Act of 1944, 
33 U.S.C. 708, or uses of storage pursuant to the WSA of 1958, 43 
U.S.C. 390b. It would not alter the terms of existing water supply 
agreements with the Corps, but would apply to all water storage 
agreements, including new agreements for users with expiring 
agreements, finalized after the effective date of the final rule. 
Current water supply withdrawals that are occurring pursuant to 
easements only, without water supply agreements, will be reassessed 
when the easements expire, or within five years of the effective date 
of the final rule, whichever is earlier. If those withdrawals are found 
to require a Section 6 surplus water contract or a WSA storage 
agreement, the appropriate agreement shall be required in order for the 
withdrawals to continue.
    The proposed rule would apply only to reservoir projects operated 
by the Corps, not to projects operated by other federal or non-federal 
entities. It would not apply to uses of water or storage that may be 
authorized by other federal laws or implementing regulations, or to the 
exercise of Tribal reserved water rights. It would not establish or 
determine any consumptive water rights.
    Nor would the proposed rule itself result in any physical changes 
or changes to operations at Corps reservoirs. The proposed rule would 
bring greater clarity and consistency to the Corps' implementation of 
Section 6 and the WSA, but would not itself cause particular decisions 
to be made or actions to be taken at particular projects. Such 
decisions would be made only after subsequent reports and documentation 
pursuant to other laws and regulations that are not within the scope of 
this proposed rule.

III. Administrative Requirements

A. Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review''

    Under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 
13563 (76 FR 3821, January 21, 2011), the Corps must determine whether 
the regulatory action is ``significant'' and therefore subject to 
review by the Office of Management and Budget (OMB) and the 
requirements of the Executive Orders. The Executive Orders define 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The Corps has determined that the proposed action is a 
``significant regulatory action,'' because it raises novel legal or 
policy issues. The Corps' water supply practices and lack of formal 
regulations in this area have resulted in litigation regarding its 
authority to make operational changes to accommodate water supply under 
the WSA, and have frustrated the finalization of contractual 
arrangements for the withdrawal of surplus water from Corps reservoirs 
under Section 6. In proposing this rule, the Corps seeks to establish a 
uniform understanding of Section 6 and the WSA and the range of 
activity that is authorized under each statute. These matters involve 
novel legal and policy issues. Because the Corps has determined that 
this proposal involves a ``significant regulatory action,'' we have 
submitted this action to OMB for review, and any changes made in 
response to OMB recommendations have been documented in the docket for 
this action.
    The proposed rule does not meet the other tests for a ``significant 
regulatory action.'' With respect to the first test, the rule is not 
expected to have an annual effect on the economy of $100 million or 
more. The proposed rule would not cause any physical changes or changes 
to operations at any Corps reservoir. With respect to future actions 
that could be undertaken pursuant to the WSA, the proposed rule largely 
clarifies existing interpretations, definitions and policies, and would 
not modify the terms of existing storage agreements, although it would 
establish requirements for future agreements and require agreements for 
water supply users currently operating without a contract, if 
continuing uses are subsequently determined to fall within the 
authority of either Section 6 or the WSA. It would not change the 
Corps' current pricing policies for the inclusion of storage under the 
WSA, and would not impose additional costs on others or affect the 
payment of revenues to the Treasury for water supply storage under the 
WSA. The proposed rule is

[[Page 91583]]

intended to clarify and adopt the Corps' customary practices with 
regard to storage accounting and accounting for return flows, and to 
make storage accounting methodologies more transparent, without 
disrupting current practice or creating new incentives or disincentives 
for utilizing Corps reservoirs for water supply. While the proposed 
rule would formally codify the Corps' practice of seeking comment from 
other agencies and the public on proposed reallocations of storage 
under the WSA, the proposed rule would not significantly change that 
existing practice, and would not impose additional requirements on any 
other entity. Rather, the rule is expected to improve clarity and 
coordination, providing unquantified benefits by reducing 
misunderstanding and litigation risk. In the case of Section 6 and WSA 
actions at projects that include federal hydropower, the Corps would 
coordinate in advance with the applicable federal PMA, and utilize in 
its determinations any information that the PMA provides regarding 
potential impacts to the federal hydropower purpose.
    With respect to Section 6, the proposed rule would clarify and 
modify existing interpretations, definitions and policies applicable to 
future surplus water contracts, without affecting the terms of existing 
contracts. The proposed rule would establish a new methodology for 
determining a ``reasonable'' price for surplus water contracts, clarify 
the definitions of the terms ``surplus water'' and ``domestic and 
industrial uses,'' and simplify the processes for granting the 
approvals associated with surplus water determinations under Section 6. 
These provisions are expected to provide unquantified benefits by 
reducing misunderstanding and litigation risk, and also to increase the 
number of surplus water contracts that the Corps will enter into 
pursuant to Section 6, to accommodate some uses that have previously 
occurred without formal water supply agreements.
    The proposed rule will bring the Corps' interpretation of a 
``reasonable'' price into conformity with the provisions of WRRDA 2014 
relating to charges for surplus water uses at the Missouri River 
mainstem reservoirs. In accordance with that Act, the proposed rule 
would acknowledge that the Corps will not charge for surplus water uses 
at its Missouri River mainstem reservoirs for a ten-year period ending 
June 10, 2024. For new Section 6 agreements at all other Corps 
reservoirs, and for any new Section 6 agreements at the Missouri River 
mainstem reservoirs after June 10, 2024, the Corps is proposing to 
determine the ``reasonable'' price of surplus water based upon the 
full, separable costs the Corps incurs in accommodating the surplus 
water request. The Corps does not expect it ordinarily will incur 
significant costs in making surplus water available, or that, to the 
extent such costs are incurred, they would be significant. The cost 
implications of these provisions fall far short of the Executive 
Orders' $100 million threshold, because the few surplus water contracts 
that do exist involve total costs in the thousands, not millions, of 
dollars; most current uses of surplus water are occurring only by 
virtue of an easement across Corps lands, without surplus water 
contracts and without charges for surplus water use; and most uses of 
surplus water under the proposed rule would involve little or no charge 
for the new surplus water contract that would be required. 
Transactional costs associated with the execution of new surplus water 
agreements, where presently only easements have been issued to 
facilitate surplus water withdrawals, are expected to be small, because 
the proposed rule would combine the surplus water contract approval 
with the easement approval process that already exists.
    The Corps has only rarely entered into surplus water contracts 
pursuant to Section 6. As of July 2016, nine contracts relying on 
Section 6 were currently in effect, two of which involved no cost at 
all, and only one of which involves a total cost greater than $1039; 
the proposed rule would not affect the terms of any of these existing 
contracts. Apart from those few existing contracts, internal audits 
have identified approximately 1,600 real estate instruments that have 
been issued to grant access across Corps project lands for water 
intakes at Corps reservoirs: 400 easements at the 6 Missouri River 
mainstem reservoirs, and 1,200 real estate instruments at non-Missouri 
River projects.\39\ Approximately 2,300 individual withdrawals are 
associated with these easements, for purposes variously described as 
municipal and industrial, domestic, irrigation, and unspecified. 
Specific details as to the purpose, amount, and authority for most of 
these withdrawals are not available. However, based on information 
provided by the Corps' District and Division offices, it is believed 
that the great majority of the 1,600 real estate instruments support 
relatively small-scale withdrawals, associated with State-administered 
water rights, for limited time periods, which have no known effect on 
project operations. Some of the uses associated with the 1,600 real 
estate instruments, including approximately 400 real estate easements 
for water withdrawal intakes at the Missouri River mainstem reservoirs, 
have previously been identified as potential candidates for Section 6 
surplus water contracts, even though no contracts are presently 
associated with the withdrawals. Analysis of Missouri River 
withdrawals, and the limited information available with respect to non-
contractual water supply withdrawals elsewhere, has not identified any 
inference with project operations from withdrawals associated with the 
1,600 real estate easements. Thus, the Corps believes that under the 
proposed rule, which would clarify and refine the definitions of 
``surplus water'' (generally, water that is not required to fulfill an 
authorized purpose of a project) and ``domestic and industrial uses'' 
(beneficial uses other than irrigation uses under 43 U.S.C. 390, i.e., 
the federal Reclamation laws), most of the approximately 2,300 current 
withdrawals, associated with the approximately 1,600 real estate 
instruments, could be accommodated under the authority of Section 6.
---------------------------------------------------------------------------

    \39\ See CECW-P, Memorandum for Assistant Secretary of the Army 
(Civil Works), Subject: Audit of Water Withdrawals from the U.S. 
Army Corps of Engineers Reservoirs and Projects Nationwide 11-13 
(Mar. 30, 2012) (on file); CECW-P, Memorandum for Assistant 
Secretary of the Army (Civil Works), Subject: Audit of Water 
Withdrawals from the Missouri River Mainstem Reservoirs, Encl. 1 at 
3 (Feb. 3, 2012) (on file).
---------------------------------------------------------------------------

    For purposes of evaluating the economic effects of the proposed 
rule, the Corps assumes that an equivalent number of withdrawals could, 
in the future, be accommodated on an annual basis through surplus water 
contracts pursuant to Section 6. The proposed rule provides that 
surplus water contracts would be combined with the real estate 
instrument necessary to provide access for the withdrawals. Thus, the 
Corps estimates that under the proposed rule, it would enter into 
approximately 1,600 limited-term surplus water authorizations (combined 
contract and easement documents), renewable for as long as surplus 
water remains available. Without the proposed rule, the Corps would not 
enter into most or all of these contracts, because the authority for 
the withdrawals, and the Corps' policies for documenting and applying 
Section 6 to such withdrawals, would remain unclear. Under the proposed 
rule, the Corps would continue to issue and charge for real estate 
instruments in accordance with other applicable law and regulation, and 
would charge for the surplus water

[[Page 91584]]

contracts based on the full, separable costs, if any, that the 
Government incurs in making surplus water available.
    At the Corps' Missouri River projects, where 400 of the 1,600 
current water intake easements are located, the Corps would not assess 
any charge for the surplus water use before June 2024, pursuant to 
WRRDA 2014. The proposed rule would no effect on the price of such 
surplus water contracts, and no effect on the amount that such users 
pay ($0), or the revenues accruing to the U.S. Treasury ($0).
    At reservoir projects outside the Missouri River mainstem system--
and at the Missouri River projects, after June 2024--the proposed rule 
would provide for charges for surplus water contracts based only on the 
full, separable costs incurred by the Government in making the surplus 
water available, which is expected to result in no more than minimal 
cost to the user for future surplus water contracts. Of the few surplus 
water contracts that currently exist outside the Missouri River basin, 
most (6 out of 7) involve a total cost to the user of about $1000 over 
a 5-year contract period. The costs for these contracts have included a 
$1000 administrative charge, plus additional costs based on estimated 
revenues or benefits foregone, or a share of OMRR&R expenses, ranging 
from $9 in one case (for a total contact cost of $1009 over 5 years) to 
$71,780 (for a total contract cost of $72,780 over 5 years). For the 
great majority of the estimated 1,600 current surplus water uses that 
are presently being made at no cost, there would be a minor cost 
difference under the proposed rule, unless the surplus water 
withdrawals involve a significant cost to the Government. Without the 
proposed rule, these withdrawals would be expected to continue without 
surplus water contracts, and therefore without cost to the user, and 
without revenues to the United States Treasury associated with the 
withdrawals. Under the proposed rule, the Corps could would enter into 
surplus water agreements in the future authorizing such uses, charging 
only the full, separable costs to the Government, which are expected to 
be small, or non-existent. Considering that the few surplus water 
contracts currently in effect charge approximately $1000 per contract, 
without identifying significant separable costs to the Government, and 
assuming that the full, separable costs of making surplus water 
available in most cases would be minimal, the cost difference under the 
proposed rule would amount to a reduction in cost to users of 
approximately $1000 per contract, and a reduction in revenues to the 
Treasury of approximately $1000 per contract. If the full, separable 
costs for new surplus water contracts averaged $1,000 per surplus water 
contract--similar to the price currently paid under existing surplus 
water contracts, and likely more than the cost that would be assessed 
under the proposed rule--the additional cost charged to users, and the 
additional revenue received by the U.S. Treasury, for 1,600 surplus 
water contracts would amount to a total of $1,600,000.
    The cost implications of the proposed rule for determining 
``reasonable'' prices under Section 6 would likely be even less than 
$1,600,000, because 400 of the 1,600 easements are associated with 
withdrawals from the Missouri River mainstem reservoirs, where all 
charges for surplus water uses are precluded by statute (WRRDA 2014) 
until 2024, with or without the proposed rule. Thus, for purposes of 
evaluating the economic impacts of the proposed rule, the Corps has 
assumed that there would be no charge for those 400 surplus water uses 
at the Missouri River projects.\40\ Assuming that only 1,200 of 1,600 
new surplus water contracts under the proposed rule would involve 
charges of up to $1000 per contract, the total cost to users of such 
contracts would be $1,200,000 (see Table 1 below). In any event, the 
annual effect on the economy from the proposed pricing policy under 
Section 6 would be far less than $100 million.
---------------------------------------------------------------------------

    \40\ In draft surplus water reports recently prepared for the 
six Missouri River mainstem reservoirs, prior to the enactment of 
WRRDA 2014, the Corps had estimated that the total annual cost of 
storage for all current and projected surplus water uses at those 
six reservoirs would be approximately $10,000,000, with an annual 
cost per acre-foot of surplus water of $53.77. See U.S. Army Corps 
of Engineers, Omaha District, Final Garrison Dam/Lake Sakakawea 
Project, North Dakota, Surplus Water Report Vol. 1 at 3-46 to 3-55 
(March 2011) (finalized July 13, 2012); Final Fort Peck Dam/Fort 
Peck Lake Project, Montana, Surplus Water Report Vol. 1 at 3-29 to 
3-35 (September 2014) (draft); Final Oahe Dam/Lake Oahe Project, 
South Dakota and North Dakota, Surplus Water Report Vol. 1 at 3-29 
to 3-36 (September 2014) (draft); Final Big Bend Dam/Lake Sharpe 
Project, South Dakota, Surplus Water Report Vol. 1 at 3-27 to 3-34 
(September 2014) (draft); Final Fort Randall Dam/Lake Francis Case 
Project, South Dakota, Surplus Water Report Vol. 1 at 3-27 to 3-34 
(September 2014) (draft); Final Gavins Point Dam/Lewis and Clark 
Lake Project, Nebraska and South Dakota, Surplus Water Report Vol. 1 
at 3-28 to 3-35 (September 2014) (draft), available at http://www.nwo.usace.army.mil/Missions/CivilWorks/Planning/PlanningProjects.aspx. The reports, which addressed potential 
surplus water uses during a 10-year period of analysis, originally 
calculated approximate prices for those uses according to the 
pricing methodology set forth in ER 1105-2-100. The reports did not 
specifically identify or discuss any full, separable costs to the 
Government associated with the projected surplus water withdrawals. 
As acknowledged in each of the surplus water reports, WRRDA 2014, 
Sec.  1046(c) precludes any charges for surplus water contracts 
during the ten-year period contemplated in the reports, and thus it 
is not reasonably foreseeable that the pricing for storage as 
originally described in the draft reports would be implemented, with 
or without the proposed rule.

                 Table 1--Easements and Estimated Contract Costs With and Without Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                                                  Approximate
                                                  Approximate      cost for     Estimated cost     Total cost
               Easement location                   number of     surplus water    for surplus   difference--with
                                                   easements       (without      water (under   and without rule
                                                                proposed rule)  proposed rule)
----------------------------------------------------------------------------------------------------------------
Missouri River Mainstem System................             400              $0         \41\ $0               $0
Nationwide (Non-Missouri River)...............            1200              $0        <= $1000    <= $1,200,000
----------------------------------------------------------------------------------------------------------------

    The provisions streamlining the processes for evaluating and 
granting the approvals associated with surplus water determinations are 
expected to reduce the administrative requirements associated with 
individual surplus water requests and eliminate former practices that 
have frustrated the finalization of contracts for uses of surplus water 
at Corps reservoirs. They will result in some unquantified cost savings 
to the Government and the party making the request for use of the 
surplus water; however, those savings (which are discussed in Part 
III.C. of the proposed rule) do not approach the monetary threshold 
specified in the Executive Orders.
---------------------------------------------------------------------------

    \41\ Until June 2024, per WRRDA 2014 Sec.  1046(c).
---------------------------------------------------------------------------

    As to the other matters to be considered under the first test for a 
``significant regulatory action'' under

[[Page 91585]]

Executive Orders 12866 and 13563, the proposed rule would not adversely 
affect in a material way, the economy, productivity, competition, jobs, 
public health or safety, of state, local, or Tribal governments or 
communities. The proposed rule clarifies the Corps' interpretation of 
its authority under the WSA and Section 6. The proposed rule is 
intended to bring transparency and certainty to the Corps' contract 
practices under those authorities and to ensure those practices align 
with Congressional intent. Their goal is to enhance the Corps' ability 
to cooperate with State, Tribal, Federal, and local interests in 
facilitating water supply uses at Corps' reservoirs in a manner that is 
consistent with the authorized purposes of those reservoirs, and does 
not interfere with lawful uses of water. The proposed rule would apply 
prospectively and would not alter the terms of any existing water 
supply agreements. The proposed rule would not impose any unfunded 
mandates on others, or result in any on the ground changes in reservoir 
operations. Those changes are determined through separate 
administrative processes.
    With respect to the second and third definitional tests for 
determining whether the proposal constitutes a ``significant regulatory 
action'', this proposal will not create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency. 
Nor will it materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof. The proposed rule would apply only to reservoir 
projects operated by the Corps, not to projects operated by other 
federal or non-federal entities.

B. Unfunded Mandates Reform Act (Pub. L. 104-4, Sec.  202)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA), 
Public Law 104-4, requires Federal agencies to assess the effects of 
their regulatory actions on State, local, and Tribal governments and 
the private sector. Under Section 202 of the UMRA, the agencies 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and Tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. The proposed rule would clarify the Corps' interpretation of 
its authority under Section 6 and the WSA and establish more consistent 
policies for the Corps' exercise of those authorities. The proposed 
rule does not require any non-federal entity to take any action under 
these authorities and does not impose any unfunded requirements for 
State, local, and Tribal governments, or for the private sector.

C. Regulatory Flexibility Act, as Amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 601 et seq.

    The Regulatory Flexibility Act generally requires an agency to 
prepare a regulatory flexibility analysis of any rule subject to 
notice-and-comment rulemaking under the Administrative Procedure Act or 
any other statute unless the agency certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities. Small entities include small businesses, small organizations 
and small governmental jurisdictions.
    For purposes of assessing the impacts of this rule on small 
entities, a small entity is defined as: (1) A small business based on 
Small Business Administration size standards; (2) a small governmental 
jurisdiction that is a government of a city, county, town, school 
district, or special district with a population of less than 50,000; or 
(3) a small organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    With respect to future actions that could be undertaken pursuant to 
the WSA, the proposed rule largely clarifies existing interpretations, 
definitions and policies, and would not modify the terms of existing 
storage agreements with small entities or others. The proposed rule 
would not change the Corps' pricing policies for the inclusion of 
storage under the WSA, and would not impose additional costs on others 
or affect the payment of revenues to the Treasury for water supply 
storage under the WSA. It would clarify and adopt the Corps' customary 
practices with regard to storage accounting and accounting for return 
flows, and would make storage accounting methodologies more 
transparent, without disrupting current practice or creating new 
incentives or disincentives for utilizing Corps reservoirs for water 
supply. While the proposed rule would formally codify the Corps' 
practice of seeking comment from the public on proposed reallocations 
of storage under the WSA, the proposed rule would not significantly 
change that existing practice, and would not impose additional 
requirements on small entities, or any other entity. Thus, the proposed 
rule with respect to the WSA will not have a significant economic 
impact on a substantial number of small entities.
    The proposed rule for implementing Section 6 also will not have a 
significant impact on a substantial number of small entities; while 
surplus water users making withdrawals without a contract would need to 
obtain one in order to continue those withdrawals, the cost of the 
contract is anticipated to be minimal. Under the proposed rule, the 
Corps would no longer charge surplus water users, including small 
entities, for the cost of reservoir storage under Section 6. Should a 
potential user, including a small entity, elect to enter into a surplus 
water contract with the Corps, the price charged under that contract 
would be based only upon the full, separable costs that the Government 
may incur in making surplus water available. The Corps does not expect 
that it ordinarily will incur any direct significant costs in making 
surplus water available, or that such costs would be substantial, given 
the proposed definition of ``surplus water'' as water that is not 
required during a specified time period to accomplish any authorized 
purpose of the project. The proposed rule would also implement recently 
enacted law by providing, in accordance with WRRDA 2014, Sec.  1046(c), 
that no charge will be assessed for surplus water uses at the Corps' 
Missouri River mainstem reservoirs for ten years after June 10, 2014.
    The new pricing policy under the proposed rule would result in an 
increased number of contracts for surplus water, since some existing 
surplus water uses are not currently under contract, but this is not 
expected to have a significant economic impact on a substantial number 
of small entities. Issues surrounding the Corps' existing pricing 
policies and implementation practices under Section 6 have frustrated 
the finalization of contractual understandings regarding current and 
prospective water withdrawals. As a result, most surplus water 
withdrawals are occurring without contracts and without payment to the 
United States Treasury. The Corps has identified nine current contracts 
that identify Section 6 as a source of authority, of which seven 
provide for some payment to the United States Treasury in connection 
with the surplus water withdrawals. Only one of these agreements 
involves a total payment greater than $1,000, and annual payments of 
any amount. Six of these agreements are for a total amount of 
approximately $1,000, with no annual charges, and two of the agreements 
are at no cost, because they are for surplus

[[Page 91586]]

water at Lake Sakakawea, a Missouri River mainstem reservoir subject to 
the no-charge provision of WRRDA 2014. Taking this experience into 
account, the new pricing policy for surplus water is not expected to 
have a significant economic effect on a substantial number of small 
entities. Of the nine current users with surplus water contracts, two 
(at Missouri River projects) would pay nothing, and the remaining seven 
would pay approximately the same, or less, under the proposed rule. For 
those users currently making withdrawals, assuming the withdrawals 
continue with new surplus water contracts, the cost under the proposed 
rule would not be substantial. Surplus water users at the Missouri 
River mainstem reservoirs would not be charged for surplus water 
contracts until at least 2024, and charges after that date under the 
proposed rule would likely not be substantial under the proposed rule.
    The proposed rule would streamline administrative processes and 
reduce transactional costs associated with surplus water contracts 
under current policy and practice. Instead of setting forth the 
understandings surrounding surplus water withdrawals in two documents 
(a real estate easement and a surplus water agreement), the Corps is 
proposing in this rule to combine the approvals that would be required 
to provide access to, and the authorization for the withdrawals, in one 
document. Virtually all entities withdrawing water from Corps 
reservoirs hold separate grants of real estate instruments (typically 
easements) allowing access across federal project lands. Clarifying the 
definition of ``surplus water,'' and simplifying and streamlining the 
administrative processes associated with authorizing surplus water 
withdrawals, should promote the finalization of contracts for surplus 
water and facilitate a small entity's access to that water. It also 
should result in some cost savings to small entities, because the 
administrative costs associated with one document (a contract and 
easement) can be expected to be less than the administrative costs 
associated with two documents (an easement and a separate contract). 
These cost savings, while beneficial to small entities, are not 
expected to be significant, given the relatively small costs involved.
    In general, the Corps' practices for recovering the costs 
associated with such agreements are guided by the principle that the 
services the Corps provides should be self-sustaining. However, for 
several reasons, it is not possible to arrive at a firm figure for the 
savings a small entity can expect to reap from the administrative 
simplification proposed in this rule. First, the Corps has entered into 
a very small number of Section 6 agreements, and it does not have 
reliable information on the costs that could be associated with such 
agreements, although those costs are expected to be low. As noted 
above, of the 9 contracts relying on Section 6 in effect as of August 
2016, 2 involve no cost at all, and 6 involve a total cost of 
approximately $1000, based on estimated administrative costs, and 
revenues and benefits foregone. The Corps lacks cost information for 
other withdrawals, believed to be utilizing surplus water, that are 
occurring in connection with approximately 1,600 easements, without 
contracts. Second, the charges that the Corps imposes for providing the 
easements traversing Federal lands are governed by separate laws and 
policies unrelated to surplus water, and they vary according to the 
complexity of the transaction and the amount of information gathering 
required, as well as the value of the real estate interest being 
conveyed.
    In general, the fees for real estate easements vary from 
approximately $300 to $1,000 depending on the complexity of the 
transaction involved. Extrapolating from these real estate related 
costs and assuming they bear some similarity to the administrative 
costs a user may be charged for the expense to the Government of 
preparing and administering a separate surplus water contract, it is 
reasonable to conclude that small entities may expect to save similar, 
or slightly smaller amounts, per each transaction, because the 
Government would be authorizing the surplus water withdrawals through a 
single real estate easement, rather than two separate documents and 
transactions. The Corps estimates that a total of approximately 1,600 
uses of surplus water, pursuant to easements but without contracts, are 
occurring at Corps reservoirs and could potentially be authorized under 
Section 6. As shown on Table 1, above, the total cost charged to all 
users for surplus water uses, if 1,600 new contracts were executed 
pursuant to the proposed rule, is expected to be equal to or less than 
$1,200,000. The impact on small entities associated with the savings in 
administrative costs under the proposed rule would not be significant, 
even if one assumes the Corps grants approvals to such entities for 
1,600 surplus water withdrawals each year, through a combined easement 
and authorization document, rather than through separate documents.

D. Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

    This proposed rule does not impose any new information collection 
burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 
3501 et seq. As before, parties seeking to make use of Corps reservoirs 
for water supply must submit a request to the Corps, and provide 
information regarding the amount of withdrawals requested. However, the 
Corps has not previously analyzed the information collection burden 
associated with water supply requests from Corps reservoirs, or 
solicited public comments or secured OMB approval for information 
collection requests specific to the Corps' water supply program. 
Accordingly, the Corps is separately developing a new form that could 
be used by applicants seeking to make use of Corps reservoirs for water 
supply. This new, proposed form, and the Corps' evaluation of the 
information burden associated with it, will be submitted to OMB for 
review and made available for public comment. This proposed rule 
governing the use of Corps reservoirs for water supply may be finalized 
prior to final approval of the associated information collection 
request, but no party will be required to complete the form or submit 
information related to a water supply request until an information 
collection request has been approved, and an OMB control number has 
been assigned.
    Because this action is still under development, the Corps has not 
evaluated the information collection burden associated with the 
proposal, but the Corps does not expect that the burden would be 
significant. Preliminarily, based on other survey forms that the Corps 
has used with OMB approval, the Corps expects that the burden would 
involve approximately 1 hour per user to complete the form. The Corps 
expects to enter into as many as 1600 contracts initially, to reflect 
ongoing surplus water uses that are not presently under contract; but 
over time, the Corps expects that water supply requests would be 
received at the present rate. Between 1986 and 2014, the Corps entered 
into an average of 5 water supply agreements per year.
    Additionally, the Corps recognizes that water supply requests 
typically require separate approvals from the Corps, under its 
regulatory (e.g., Clean Water Act or Rivers and Harbors Act) or real 
estate authorities. The proposed water supply information collection 
request would reference, but would not duplicate or add to, the 
information collection requests associated with these separate 
activities. Parties seeking to

[[Page 91587]]

make use of Corps reservoirs would, as before the proposed rule, be 
required to submit the information necessary to process those 
applications.

E. Executive Order 13132, ``Federalism''

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires the Corps to develop an accountable process to 
ensure ``meaningful and timely input by State and local officials in 
the development of regulatory policies that have Federalism 
implications.'' The phrase ``policies that have Federalism 
implications'' is defined in the Executive Order to include regulations 
that have ``substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.''
    We do not believe that the proposed rule has Federalism 
implications. The Corps operates its water resource development 
projects in accordance with federal legislation that Congress has 
enacted. In accordance with this Congressional intent, the Corps 
endeavors to operate its projects for their authorized purposes in a 
manner that does not interfere with the States' abilities to allocate 
consumptive water rights, or with lawful uses pursuant to State 
authorities. The Corps develops water control plans and manuals through 
a public process, affording all interested parties the opportunity to 
present information regarding uses that may be affected by Corps 
operations, and the Corps takes that information into account in 
determining operations for authorized purposes of its projects. The 
proposed rule acknowledges, but would not change, these authorities, 
operations pursuant to these authorities, or the processes for updating 
operating manuals.
    Section 6 and the WSA authorize the Corps to make its reservoirs 
available for water supply use by others, even where water supply is 
not otherwise a specifically authorized purpose of those projects. 
Congress did not intend for the Corps to interfere with State 
allocations of water when exercising its discretion under Section 6 or 
the WSA. The proposed rule recognizes this and would not interfere with 
State prerogatives. The proposed rule would apply only to Corps 
reservoirs, not to reservoir operated by non-federal entities, and it 
would not establish or determine any consumptive water rights. Nor 
would the proposed rule itself result in any physical changes or 
changes to operations at Corps reservoirs. The proposed rule does 
include provisions intended to improve coordination with States, when 
the Corps takes action pursuant to Section 6 or the WSA, but it would 
not change the relationship between the federal government and the 
States.
    Rather, the rule would reinforce the Corps' current practice of 
recognizing the interests and rights of States in the development of 
waters, as provided in existing law. The proposed rule would provide 
that, when the Corps does proposed to take action pursuant to its 
authority under Section 6 or the WSA, such action shall not adversely 
affect any then-existing, State-recognized water right. The proposed 
rule would improve the ability of the Corps to exercise its authority 
under Section 6 and the WSA to facilitate the exercise of water rights 
held by others. The proposed rule would also improve the ability of the 
Corps to accommodate the efforts of States and local interests to 
develop their own water supplies through nonfederal conveyance systems, 
in connection with the operation of Corps reservoir projects. The 
proposed rule would not apply to uses of water or storage that may be 
authorized by other federal laws or implementing regulations. It would 
not establish or determine any consumptive water rights.
    Finalization of the proposed rule would not impose any substantive 
obligations on State or local governments. We do not believe that 
clarifying and improving the Corps' ability to exercise its statutory 
authorities under Section 6 and the WSA will have substantial direct 
effects on the States, the relationship between the Federal government 
and the States, or on the distribution of power and responsibilities 
among the various levels of government. Therefore, we do not believe 
that Executive Order 13132 applies to this proposed rule.

F. Executive Order 13175, ``Consultation and Coordination With Indian 
Tribal Governments''

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires the agencies to develop an accountable process to ensure 
``meaningful and timely input by tribal officials in the development of 
regulatory policies that have tribal implications.'' The phrase 
``policies that have tribal implications'' is defined in the Executive 
Order to include regulations that have ``substantial direct effects on 
one or more Indian tribes, on the relationship between the Federal 
government and the Indian tribes, or on the distribution of power and 
responsibilities between the Federal government and Indian tribes.''
    We do not believe that the proposed rule has tribal implications. 
The Corps operates its water resource development projects in 
accordance with federal legislation that Congress has enacted. In 
accordance with this Congressional intent, the Corps endeavors to 
operate its projects for their authorized purposes in a manner that 
does not interfere with lawful uses pursuant to Tribal authorities. The 
Corps develops water control plans and manuals through a public 
process, affording all interested parties the opportunity to present 
information regarding uses that may be affected by Corps operations, 
and the Corps takes that information into account in determining 
operations for authorized purposes of its projects. The proposed rule 
acknowledges, but would not change, these authorities, operations 
pursuant to these authorities, or the processes for updating operating 
manuals. The proposed rule would not itself result in any physical 
changes or changes to operations at Corps reservoirs.
    In proposing this rule, we recognize that Tribal reserved water 
rights enjoy a unique status under federal law, and that the exercise 
of such rights is not dependent upon the Corps' discretionary actions 
pursuant to Section 6 or the WSA. The proposed rule would not apply to 
uses of water or storage that may be authorized by other federal laws 
or implementing regulations, or to the exercise of Tribal reserved 
water rights. It would not establish, define, or quantify any Tribal 
water rights. The proposed rule would clarify that the Corps' exercise 
of its authority under Section 6 or the WSA shall not adversely affect 
any Tribal or other federal reserved water right, including reserved 
water rights that have not yet been quantified. It contains provisions 
that are intended to ensure proper coordination before decisions are 
made, to foster more effective communication with Tribes, and to ensure 
that reserved water rights of Tribes are protected.
    The proposed rule does not impose new substantive requirements on 
Indian tribal governments. We do not believe that clarifying and 
improving the Corps' ability to exercise its statutory authorities 
under Section 6 and the WSA will have substantial direct effects on 
tribal governments, the relationship between the Federal government and 
the Indian Tribes, or on the distribution of power and responsibilities 
between the Federal government and Indian tribes. Therefore, we do not 
believe that

[[Page 91588]]

Executive Order 13175 applies to this proposed rule.

G. Congressional Review Act, 5 U.S.C. 801 et seq.

    The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996, 
generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to each House of the Congress and to the Comptroller 
General of the United States. We will submit a report containing this 
rule and other required information to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule cannot take effect until 60 days after it is published in 
the Federal Register. This proposed rule is not a ``major rule'' as 
defined by 5 U.S.C. 804(2).

H. Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution or Use''

    This proposed rule is not a ``significant energy action'' as 
defined in Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution or Use'' (66 FR 28355, 
May 22, 2001) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. This proposed 
rule relates to the use of Corps reservoirs for water supply under 
Section 6 or the WSA. The proposed rule does not by itself affect 
operations at any Corps reservoir. Moreover, subsequent actions that 
the Corps may take to accommodate water supply uses at a Corps 
reservoir project would have to be consistent with the authorized 
purposes of that reservoir project. The proposed rule is consistent 
with current agency practice, does not impose new substantive 
requirements, and therefore will not have a significant adverse effect 
on the supply, distribution, or use of energy.

I. Plain Language

    In compliance with the principles in the President's Memorandum of 
June 1, 1998 (63 FR 31855), regarding plain language, this preamble is 
written using plain language. The use of ``we'' in this notice refers 
to the Corps. We have also used the active voice, short sentences, and 
common everyday terms except for necessary technical terms.

J. Environmental Documentation

    The Corps has prepared a draft Environmental Assessment (EA) in 
accordance with the National Environmental Policy Act (NEPA). The 
proposed rule is procedural in nature, in that it proposes to establish 
an accepted legal interpretation of the authority conferred under 
Section 6 and the WSA, and to set forth the processes that will be 
followed when taking action under these authorities. The clarifications 
of policies governing the Corps' implementation of Section 6 and the 
WSA would not, in and of themselves, significantly affect the quality 
of the human environment. Only subsequent, specific actions that the 
Corps might consider taking at particular Corps reservoir projects, 
consistent with the principles set forth in the proposed rule, may 
affect the environment. The environmental effects of any such 
subsequent actions, such as a decision to enter into an agreement with 
a nonfederal entity for surplus water uses of water at a particular 
Corps reservoir pursuant to Section 6, or to include storage in a 
particular reservoir project for water supply pursuant to the WSA, will 
be separately evaluated in accordance with NEPA before any final 
decisions are rendered. Any such environmental effects would be 
dependent on the circumstances of the particular reservoir project, and 
of the particular action that may be proposed. Thus, the Corps has made 
a preliminary determination that preparation of an Environmental Impact 
Statement (EIS) will not be required for publication of this proposed 
rule. A copy of the draft EA is available at http://www.regulations.gov 
in docket number COE-2016-0016.

List of Subjects in 33 CFR Part 209

    Electric power, Mississippi River, Navigation (water), Sunshine 
Act, Surplus water, Water supply storage, Waterways.

    Dated: December 8, 2016.
Jo-Ellen Darcy,
Assistant Secretary of the Army (Civil Works), Department of the Army.

33 CFR PART 209 [AMENDED]

0
1. The authority citation for part 209 is revised to read as follows:

    Authority: 5 U.S.C. 301; 33 U.S.C. 1; 10 U.S.C. 3012; 33 U.S.C. 
708; 43 U.S.C. 390b
0
2. Add Sec.  209.231 to read as follows:


Sec.  209.231  Use of U.S. Army Corps of Engineers Reservoir Projects 
for Domestic, municipal, and industrial water supply.

    (a) Definitions. For purposes of the Water Supply Act, 43 U.S.C. 
390b, when applied to a U.S. Army Corps of Engineers reservoir project:
    (1) The terms ``reservoir project'' and ``project'' mean any 
facility surveyed, planned, or constructed, or to be planned, surveyed, 
or constructed, and under the operational control of the U.S. Army 
Corps of Engineers, to impound water for multiple purposes and 
objectives. The terms ``reservoir project'' and ``project'' may 
comprise a single dam-and-reservoir facility or a system of 
improvements, depending on how the facility or system is authorized and 
funded by Congress.
    (2) The terms ``water supply,'' ``municipal or industrial water'' 
and ``municipal and industrial water supply'' mean water that is or may 
be put to any beneficial use under an applicable water rights 
allocation system, other than irrigation uses as provided under 43 
U.S.C. 390.
    (3) The term ``storage may be included'' means making storage 
available for water supply by modifying the plans for an as-yet 
unconstructed reservoir project; by changing the physical structure of 
an existing reservoir project; or by changing the operations of an 
existing reservoir project.
    (4) The term ``seriously affect the purposes for which the project 
was authorized, surveyed, planned, or constructed'' means to adversely 
affect the Congressionally-authorized purposes of a project or 
reservoir project in a manner that would fundamentally depart from 
Congressional intent, as expressed through the relevant authorizing 
legislation. Evaluation of effects on authorized purposes requires both 
technical and legal analysis of the proposed action, in light of that 
Congressional intent.
    (5) The term ``major structural or operational change'' means a 
change, to the physical structure or operations of a project or 
reservoir project, that would fundamentally depart from Congressional 
intent, as expressed through the relevant authorizing legislation. 
Evaluation of structural and operational changes requires both 
technical and legal analysis of the proposed changes, in light of that 
Congressional intent.
    (b) For purposes of section 6 of the Flood Control Act of 1944, 33 
U.S.C. 708:
    (1) The term ``reservoir,'' as used in this section, means any 
facility, under the operational control of the U.S. Army Corps of 
Engineers, that impounds water and is capable of being operated for 
multiple purposes and objectives. The term ``reservoir'' may comprise a 
single dam-and-reservoir facility or a system of improvements, 
depending on the Congressional intent for the project,

[[Page 91589]]

as expressed through the authorizing legislation relevant to that 
reservoir project or system of projects.
    (2) The term ``surplus water'' means water, available at any 
reservoir defined in paragraph (b)(1) of this section, that the 
Assistant Secretary of the Army (Civil Works) determines is not 
required during a specified time period to accomplish an authorized 
federal purpose or purposes of that reservoir, for any of the following 
reasons--
    (i) Because the authorized purpose or purposes for which such water 
was originally intended have not fully developed; or
    (ii) Because the need for water to accomplish such authorized 
purpose or purposes has lessened; or
    (iii) Because the amount of water to be withdrawn, in combination 
with any other such withdrawals during the specified time period, would 
have virtually no effect on operations for authorized purposes.
    (3) The term ``domestic and industrial uses'' means any beneficial 
use under an applicable water rights allocation system, other than 
irrigation uses as provided under 43 U.S.C. 390.
    (4) The term ``then existing lawful uses'' means uses authorized 
under a State water rights allocation system, or Tribal or other uses 
pursuant to federal law, that are occurring at the time of the surplus 
water determination, or that are reasonably expected to occur during 
the period for which surplus water has been determined to be available.
    Policies.
    (c) Determinations; Approval Authority. (1) Public participation; 
coordination with federal agencies, States and Tribes: Prior to making 
a final determination that storage may be included in a Corps reservoir 
pursuant to 43 U.S.C. 390b, or that surplus water within the meaning of 
33 U.S.C. 708 is available at a Corps reservoir, a written report shall 
be prepared explaining and documenting the basis for such 
determination. That report shall include an evaluation of any 
operational changes and impacts to authorized project purposes, and 
shall be coordinated with interested Federal, State, and Tribal water 
resource agencies. Public notice and opportunity for comment on the 
report shall be provided.
    (2) The inclusion of storage at any Corps reservoir for municipal 
and industrial water supply pursuant to 43 U.S.C. 390b shall require 
the approval of the Assistant Secretary of the Army (Civil Works).
    (3) Determinations of the availability of surplus water pursuant to 
33 U.S.C. 708 shall require the approval of the Assistant Secretary of 
the Army (Civil Works), and shall specify the time period in which 
surplus water is determined to be available.
    (4) Federal hydropower projects: At any Corps reservoir that has 
federal hydropower as an authorized purpose, where the Corps is 
considering a proposal to include storage for water supply, or to enter 
into contracts for surplus water, the Corps will coordinate that 
proposal in advance with the federal Power Marketing Administration 
that is responsible for marketing that federal power. The Corps will 
utilize in its determinations any information provided by the Power 
Marketing Administration, including its evaluation of hydropower 
impacts and cost information regarding revenues foregone and 
replacement power costs, in determining the impacts of the proposed 
action (including whether the proposed action would ``seriously 
affect'' the hydropower purpose or involve a ``major structural or 
operational change'' under 43 U.S.C. 390b, or the determination of 
whether ``surplus water'' is available under 33 U.S.C. 708), and the 
cost of storage, if applicable, to be charged to the prospective water 
supply user.
    (d) Storage agreements pursuant to the Water Supply Act, 43 U.S.C. 
390b. (1) General: Agreements for the inclusion of storage for water 
supply in a Corps reservoir (water supply storage agreements) pursuant 
to 43 U.S.C. 390b shall be executed by the Assistant Secretary of the 
Army (Civil Works) or that official's designee, and shall identify an 
amount of storage estimated to reliably provide a gross amount of water 
supply withdrawals or releases, and the costs allocated to that water 
supply storage. Agreements that would seriously affect the purposes for 
which the project was authorized, surveyed, planned, or constructed, or 
which would involve major structural or operational changes, shall not 
be executed without Congressional approval.
    (2) Water supply storage accounting: Before including storage for 
water supply, the Corps shall include in the report prescribed under 
paragraph (c)(1) of this section reasonable projections of withdrawals, 
return flows, and any other flows directly attributable to the proposed 
water supply storage use. Water supply storage agreements shall 
include, or incorporate by reference, appropriate mechanisms for 
accounting for actual storage usage and available water supply storage 
on a continuing basis, and withdrawals pursuant to those agreements 
shall be limited to the actual yield of the reallocated storage, as 
measured by that storage accounting. Such storage accounting mechanisms 
shall be based on the principle that all inflows to and losses from the 
Corps reservoir are credited or charged proportionally to each water 
supply storage account, except that direct water supply withdrawals 
from the reservoir shall be charged to the storage account of the 
entity making the withdrawal.
    (3) Pricing: Water supply storage agreements pursuant to 43 U.S.C. 
390b shall include provisions for repayment by the water supply user of 
all project costs allocated to water supply, as provided in paragraphs 
(d)(3)(i) through (d)(3)(iii) of this section, including an annual 
charge for an appropriate share of the joint-use operation, 
maintenance, repair, rehabilitation, and replacement (OMRR&R) costs, as 
follows:
    (i) In the case of projects where water supply storage is to be 
included through new construction, project costs allocated to water 
supply shall include all direct costs directly attributable to water 
supply; a share of the remaining first cost (construction cost) of the 
project, to be allocated based on the water supply share of the 
estimated benefits to be realized from the project; and an appropriate 
share of annual OMRR&R costs of the project.
    (ii) Where water supply storage is added to an existing project 
through structural modifications, project costs allocated to water 
supply shall include the direct costs of those modifications; an amount 
equal to fifty percent of the savings compared to the cost of the most 
likely alternative that could service the water supply need, in lieu of 
the proposed modification to the Corps reservoir; and an appropriate 
share of annual OMRR&R costs of the project.
    (iii) In the case of projects where no new construction costs are 
incurred in including storage for water supply, the project costs 
allocated to water supply shall be determined based upon the higher of 
quantified benefits foregone, revenues foregone, or the updated cost of 
storage allocated to water supply. The amount of storage allocated to 
water supply shall reflect an amount of storage estimated to reliably 
provide an individual user's requested, gross water supply withdrawals 
(dependable yield). The water supply user shall be responsible for an 
appropriate share of annual OMRR&R costs of the project.
    (iv) Other charges: Any charges for water supply storage agreements 
under paragraph (d)(3) of this section are in addition to any costs 
associated with any real property transactions or regulatory permits as 
may be necessary to facilitate the withdrawals.

[[Page 91590]]

    (e) Surplus water agreements pursuant to Section 6, 33 U.S.C. 708. 
(1) General: Contracts for the use of surplus water pursuant to 33 
U.S.C. 708 may be executed by the Assistant Secretary of the Army 
(Civil Works) or that official's designee, shall identify the amount of 
surplus water to be withdrawn, and shall be for a term not to exceed 
the duration of the applicable surplus water determination, as provided 
in paragraph (c)(3) of this section. The terms of such contracts and of 
any necessary easements may be incorporated into a single instrument, 
as provided in paragraph (g) of this section.
    (2) Pricing: Except as provided in paragraph (e)(2)(i) of this 
section, or by applicable federal law, surplus water agreements 
pursuant to 33 U.S.C. 708 shall include an annual charge to reflect 
only the full, separable costs, if any, to the Government associated 
with the surplus water withdrawals.
    (i) Upper Missouri River Mainstem Reservoirs: For the period ending 
ten years after June 10, 2014, no fee will be charged for surplus water 
agreements pursuant to 33 U.S.C. 708 for surplus water withdrawn from 
the Upper Missouri River Mainstem Reservoirs.
    (ii) Other charges: Any charges for surplus water uses of 
reservoirs under paragraph (e)(2) of this section are in addition to 
any costs associated with any real property transactions or regulatory 
permits as may be necessary to facilitate the withdrawals.
    (f) Exercise of Discretion and Choice of Authority; Transition 
Period. (1) The authorities of the Secretary of the Army as set forth 
in 33 U.S.C. 708 and 43 U.S.C. 390b are discretionary. The authority 
conferred under 33 U.S.C. 708 should be used, at the Secretary's 
discretion, to accommodate water supply needs provisionally, for 
limited time periods, so long as surplus water remains available, and 
provided that contracts for surplus water do not adversely affect then 
existing lawful uses of such water. The authority provided in 43 U.S.C. 
390b should be used, at the Secretary's discretion, to accommodate 
long-term and permanent water supply needs that require the 
dependability afforded by storage in a Corps reservoir.
    (2) Transition period. All new agreements entered into pursuant to 
33 U.S.C. 708 and 43 U.S.C. 390b after the effective date of the final 
rule, including new agreements for users with expiring agreements, 
shall comply with the policies set forth in this section. Current water 
supply withdrawals that are occurring pursuant to easements only, 
without water supply agreements, will be reassessed when the easements 
expire, or within five years of the effective date of the final rule, 
whichever is earlier. If those withdrawals are found to require a 
Section 6 surplus water contract or a WSA storage agreement, the 
appropriate agreement shall be required in order for the withdrawals to 
continue.
    (g) Real Estate Instruments. The Corps will issue any easements 
necessary to allow the withdrawal of water under either 33 U.S.C. 708 
or 43 U.S.C. 390b in accordance with the provisions of 10 U.S.C. 2668. 
Such easements shall be conditioned on the grantee's continued 
compliance with the terms and conditions of authorizations for 
withdrawal pursuant to either 33 U.S.C. 708 or 43 U.S.C. 390b. The 
pricing policies set forth in paragraphs (d)(3) and (e)(2) of this 
section shall not alter or substitute for any charge assessed for the 
granting of an easement pursuant to 10 U.S.C. 2668 and applicable 
regulations. Easements issued in connection with surplus water 
agreements under 33 U.S.C. 708 may incorporate all necessary terms in a 
single instrument.
    (h) Relation to State, Tribal, or other federal reserved water 
rights: The exercise by the Corps of authority under 33 U.S.C. 708 or 
43 U.S.C. 390b shall not adversely affect any then-existing State water 
right, or Tribal or other federal reserved water right. It shall be the 
responsibility of private water supply users to secure and defend any 
state water rights necessary to use water withdrawn from a Corps 
reservoir. The Corps shall not obtain water rights on behalf of water 
supply users, nor shall it become, by virtue of any agreement executed 
pursuant to 33 U.S.C. 708 or 43 U.S.C. 390b, a party to any water 
rights dispute.

[FR Doc. 2016-30017 Filed 12-15-16; 8:45 am]
 BILLING CODE 3720-58-P