Filed 4/18/25 Chino Basin Municipal Water District v. City of Ontario CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

CHINO BASIN MUNICIPAL WATER

DISTRICT,

E080457, E082127

Plaintiff and Respondent, (Super.Ct.No. RCVRS51010) v.

OPINION

CITY OF ONTARIO,

Defendant and Appellant;

CUCAMONGA VALLEY WATER

DISTRICT, et al.,

Defendants and Respondents.

APPEAL from the Superior Court of San Bernardino County. Gilbert G. Ochoa,

Judge. Reversed and remanded with directions.

Stoel Rives LLP, Elizabeth P. Ewens, Michael B. Brown and Whitney Brown, for

Defendant and Appellant, City of Ontario.

Brownstein Hyatt Farber Schreck, LLP, Scott S. Slater, Bradley J Herrema and

Laura K. Yraceburu, for Plaintiff and Respondent, Chino Basin Watermaster.

1 Lagerlof, LLP and Thomas S. Bunn III, for Defendants and Respondents, Fontana

Water Company and Cucamonga Valley Water District.

JC Law Firm, Jean Cihigoyenetche and J. Martin Cihigoyenetche, for Defendant

and Respondent Inland Empire Utilities Agency.

A 1978 stipulated judgment (Judgment) governs the water rights in the Chino

Groundwater Basin (Basin) by establishing the Basin’s governance structure, providing

judicial oversight via continuing jurisdiction provisions, and creating the Chino Basin

Watermaster (Watermaster). To achieve full utilization of the Basin’s resources,

Watermaster adopted, and the superior court approved, a long-term management

program, one element of which instituted an objective and strategy to develop storage and

recovery programs for the broad regional benefit of the parties to the Judgment. One

such program—Dry Year Yield Program (DYY Program)—stores extra groundwater

during wet years and then recovers the water during dry years. To finance its actions,

Watermaster establishes an annual budget and assesses parties to the Judgment based on

their groundwater production.

In this consolidated appeal, one party to the Judgment, the City of Ontario

(Ontario), challenges Watermaster’s fiscal year (FY) 2021/2022 and 2022/2023

assessments on the grounds Watermaster failed to levy assessments on the groundwater

voluntarily produced as part of the DYY Program based upon its erroneous interpretation

and application of the 2019 Letter Agreement that amended the agreement that governs

the DYY Program. The superior court, inter alia, found Ontario’s challenge to be an

untimely and improper objection to the 2019 Letter Agreement—entered into between

2 Three Valleys Municipal Water District (TVMWD),1 Watermaster, Metropolitan Water

District of Southern California (Metropolitan), and Inland Empire Utilities Agency

(IEUA)—and further held that stored and supplemental water (from the DYY Program or

other storage programs) are exempt from Watermaster assessment.

On appeal, Ontario requests reversal of the superior court’s orders and remand

with instructions to (1) direct Watermaster to implement the DYY Program in a manner

consistent with the Judgment and prior court orders, (2) correct and amend the

FY 2021/2022 and 2022/2023 Assessment Packages to assess water produced from the

DYY Program, and (3) invalidate the 2019 Letter Agreement and direct Watermaster to

comply with the process provided for in the Judgment and subsequent court orders when

approving material changes to the DYY Program.

We conclude the superior court erred in finding Ontario’s challenges to be

untimely and in affirming Watermaster’s interpretation of the 2019 Letter Agreement.

We therefore reverse.

I. PROCEDURAL BACKGROUND AND FACTS

A. The Judgment, Pools, and Watermaster.

In 1975, Chino Basin Municipal Water District (later known as IEUA) initiated

this action against several parties to adjudicate their rights and obligations with respect to

groundwater in the Basin, one of the largest groundwater basins in Southern California,

providing water to millions of residents in San Bernardino, Riverside, and Los Angeles

1 Referred to in the Judgment as Pomona Valley Municipal Water District.

3 Counties. Three years later, the parties stipulated to the Judgment, which created a water

management plan for the Basin—the Optimum Basin Management Program—by, among

other things, setting a safe yield (maximum extraction amount) for the Basin; establishing

three stakeholder groups or “pools”—the Overlying Agricultural Pool (Ag Pool),

Overlying Non-Agricultural Pool (Non-Ag Pool), and Appropriative Pool (Ap Pool)—

each with its own safe yield, rights, and restrictions; and allowing the superior court to

retain and exercise jurisdiction via the appointment of Watermaster, an arm of the court.

(Dow v. Honey Lake Valley Resource Conservation Dist. (2021) 63 Cal.App.5th 901, 911

[observing that Watermaster is “‘considered an arm of the Court’”].) As an arm of the

court, Watermaster administers and enforces the Judgment and any subsequent

instructions or orders of the superior court.

The Pools are responsible for costs of replenishment water and other aspects of the

physical solution. Each Pool has a committee that administers its internal affairs,

employs its own separate counsel, may seek judicial review of any Watermaster action or

failure to act, and—along with an Advisory Committee—provides advice and assistance

to Watermaster on the administration of the Judgment. Ontario is a member of the

Ap Pool. Watermaster, a nine-member board, is comprised of representatives of parties

to the Judgment, including representatives from each Pool. It “administer[s] and

enforce[s] the provisions of this Judgment and any subsequent instructions or orders of

the [c]ourt,” keeps records of water use and ownership, oversees and approves water

transfers, monitors groundwater levels, determines the operating safe yield for each year,

4 and assesses the Pools for its expenses. However, the court retains “[f]ull jurisdiction,

power and authority . . . as to all matters contained” in the Judgment.

B. The Basin’s Safe Yield

The Judgment identifies the Basin’s safe yield, namely, the amount of water that

can be withdrawn annually without harming or depleting the Basin.2 The safe yield

defines the parties’ various rights to Basin groundwater. Parties are prohibited from

producing groundwater except as provided in the Judgment, specifically “pursuant to the

provisions of the Physical Solution or a storage water agreement.” Also, a party’s

individual groundwater production establishes the party’s portion/assessment of Basin

costs. The Judgment set the initial safe yield at 140,000 acre-feet (AF) per year;

however, in 2017, the superior court reset it to 135,000 AF per year.

C. The Basin’s Groundwater Storage.

The Judgment acknowledges the Basin’s “substantial amount of available

groundwater storage capacity” for “storage and conjunctive use of supplemental water

2 “‘Safe yield’ means the long-term average annual quantity of groundwater (excluding Replenishment Water or Stored Water but including return flow to the Basin from use of Replenishment or Stored Water) which can be Produced [(pumped or extracted groundwater)] from the Basin under cultural conditions of a particular year without causing an undesirable result.” “The phrase ‘undesirable result’ is understood to refer to a gradual lowering of the groundwater levels resulting eventually in depletion of the supply.” (City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199, 278 [safe yield is “‘the maximum quantity of water which can be withdrawn annually from a groundwater supply under a given set of conditions without causing an undesirable result’”], disapproved on other grounds in City of Barstow v. Mojave Water Agency (2000) 23 Cal.4th 1224, 1247-1248.)

5 with Basin Waters.”3 Conjunctive use is the planned use of surface water and

groundwater resources (either immediately using or storing) to provide a buffer against

drought. Stored water is defined as “supplemental water held in storage, as a result of

direct spreading, in lieu delivery, or otherwise, for subsequent withdrawal” and is not

included in the Basin’s safe yield. Supplemental water includes “both water imported to

Chino Basin from outside Chino Basin Watershed, and reclaimed water,” which in turn is

defined as water “which, as a result of processing of waste water, is suitable for a

controlled use.” The Judgment expressly enjoins the unauthorized storage and

withdrawal of supplemental water other than pursuant to an agreement with Watermaster;

it compels the adoption of uniformly applicable rules and a standard form of agreement

for storage of supplemental water; however, storage agreements “shall by their terms

preclude operations which will have a substantial adverse impact on other producers.”

D. The Optimum Basin Management Program.

At the superior court’s direction, Watermaster prepared the Basin’s management

program—the Optimum Basin Management Program (OBMP)—to address groundwater

quantity and quality issues and regulate withdrawals. The OBMP was divided into two

phases: Phase I (the report) was adopted in 1999, and Phase II (implementation plan)

was approved by the court in 2000. The OBMP was subject to intensive settlement

negotiations that led to various parties to the Judgment executing the Peace Agreement in

June 2000 to resolve their disputes regarding “a number of matters pertaining to the

3 It is estimated that the Basin has an unused storage capacity of about one million

AF.

6 power and authority of the Court and Watermaster under the Judgment, . . .” It addresses

implementation of the OBMP and allows Watermaster to administer transfers, recharge,

and storage/recovery of water. The Peace Agreement, amended in 2004 and 2007,

prohibits the approval of a water storage and recovery project “if it . . . will cause any

Material Physical Injury to any party to the Judgment or the Basin.”

The OBMP’s implementation plan defines the Operational Storage Capacity of the

Basin at approximately 5,300,000 AF of water and introduces the concept of Safe Storage

(“‘an estimate of the maximum storage in the Basin that will not cause significant water

quality and high groundwater related problems’”) and Safe Storage Capacity (quantified

at about 500,000 AF). Subsurface storage space in a groundwater basin is a public

resource, which must be put to beneficial use under Article X, section 2 of the California

Constitution. (Central and West Basin Water Replenishment Dist. v. Southern Cal. Water

Co. (2003) 109 Cal.App.4th 891, 905.)

E. Annual Assessments.

Watermaster levies and collects assessments based on each party’s water

production during the prior year, namely the annual quantity of groundwater4 pumped or

extracted from the Basin. Thus, each year Watermaster staff prepare an assessment

4 The Judgment’s definition of groundwater does not distinguish between the “type” of groundwater or how that water made its way into the Basin. Groundwater is defined as water “beneath the surface of the ground and within the zone of saturation, i.e., below the existing water table.”

7 package detailing the accounting of each party’s production and use of Basin water.5

Each party’s assessment is determined by dividing the total of the fixed costs of operating

the Basin by the total annual production of all parties; this calculation yields a dollar

amount per acre feet of water. Under the Watermaster Rules and Regulations, uniform

assessment of production is mandatory. Given fixed costs, a decrease in the total annual

production results in an increase in the unit cost.

F. Groundwater Storage Program Funding Agreement and Dry Year Yield Program.

In 2000, Metropolitan received $45 million in general obligation bonds for

groundwater storage projects within its service area. IEUA and TVMWD are member

agencies of Metropolitan. Metropolitan has had storage agreements with IEUA and

Watermaster since 1979. In 2003, Metropolitan, IEUA, TVMWD, and Watermaster

entered into a Groundwater Storage Program Funding Agreement (Funding Agreement),

which was approved by the superior court. The Funding Agreement was subsequently

amended to make adjustments to improve and clarify measurement of storage and

extraction, to clarify how performance of calls will be evaluated, and to revise

administrative milestones and make miscellaneous updates.

In 2004, Watermaster, IEUA, and TVMWD entered into the Storage and Recovery

Program Storage Agreement (Storage and Recovery Agreement), which specified the

5 The term Basin water is defined as groundwater within the Basin that is part of the Safe Yield, Operating Safe Yield, or replenishment water in the Basin as a result of operations under the Physical Solution decreed in the Judgment. The “term does not include Stored Water.”

8 permissible quantity of water that could be stored under the DYY Program.6 The 2004

court order approving this agreement emphasized that the DYY Program will “provide[]

broad mutual benefits to the parties to the Judgment” but prohibited Watermaster from

approving any annual operating plan that “will have a substantial adverse impact on other

producers.” The order acknowledged the Judgment’s provision that “no use shall be

made of the storage capacity of Chino Basin except pursuant to written agreement with

Watermaster,” approved by “‘written order of the Court,’” and found the Storage and

Recovery Agreement was “unlikely to have any adverse impacts on a party to the

Judgment.”

The DYY Program authorized Metropolitan (1) to store up to 100,000 AF of

imported water in the Basin,7 subject to higher amounts if approved in advance by

Watermaster, and (2) to require (or “call”) participating agencies (including IEUA and

TVMWD) to produce (pump) 33,000 AF of stored water rather than using the same

amount of surface water. The details of how participating agencies would pump stored

6 The DYY Program “allows participating members (‘Operating Agencies’) of two wholesale agencies [IEUA] and [TVMWD] to withdraw [the] water” stored by Metropolitan. The Operating Agencies include Chino, Chino Hills, Ontario, Pomona, Upland, Cucamonga Valley Water District (CVWD), Jurupa Community Services District, and Monte Vista Water District, all of which are parties to the Judgment and retail water purveyors within the IEUA and the TVMWD service areas. These agencies, including IEUA and TVMWD, executed local agency agreements whereby they would use facilities owned or controlled by them to implement the DYY Program. The Fontana Water Company (FWC) negotiated with IEUA but did not opt-in as a participating agency.

7 This amount is within the presumptive safe harbor of the Safe Storage Capacity given the fact that Watermaster held approximately 226,797 of the 500,000 AF maximum.

9 water, including specific performance criteria regarding reductions in imported water

deliveries, were provided for in Exhibit G attached to the Funding Agreement. Exhibit G

was initially entitled “Chino Basin Conjunctive Use ‘Dry Year’ Storage Project

Performance Criteria.” Because IEUA and TVMWD are not local water producers,

Exhibit G’s performance criteria, which include both groundwater and imported water

criteria, are placed on their member agencies to perform. The imported water criteria

require a roll-off from imported water supplies and onto groundwater production from the

DYY Program. Thus, a program agency claims DYY credit that is equal to its shift off of

imported water and onto DYY Program groundwater.

The DYY Program is administered by a five-member Operating Committee,

comprised of two representatives from Metropolitan and three representatives chosen by

IEUA, TVMWD, and Watermaster. The Operating Committee is delegated with the

authority to prepare the Annual Operating Plan which provides an estimated schedule and

location for all storage and extraction under the DYY Program and in conformance with

Exhibit G on a monthly basis for the upcoming fiscal year. According to the Storage and

Recovery Agreement, the Annual Operating Plan must “provide sufficient information to

allow the Operating Committee and Watermaster to assess [the program’s] potential

impacts.”

The DYY Program “allow[s] for rational regional water supply planning by

allowing for increased imports to the Chino Basin during wet years, and reduced imports

during dry years.” In exchange for the right to store up to 25,000 AF per year in the

Basin (provided the total amount does not exceed 100,000 AF maximum unless approved

10 by Watermaster), Metropolitan invested $27.5 million in local infrastructure and makes

annual payments ($177,430 for FY 2021/22) to Watermaster for administration of the

DYY Program. Otherwise, the costs associated with the DYY Program, including

financing the maintenance and operation of its facilities and Watermaster staff

administration time, are passed on to the participating entities. DYY Program costs are

distinct from assessment fees charged for production of groundwater from the Basin.

The Funding Agreement and the Storage and Recovery Agreement were adopted

through the required process as defined in the Judgment/Peace Agreement, after notice

and consideration by the pool committees, the advisory committee, and Watermaster, and

approval by superior court order. By its order, the court recognized that any local agency

agreements necessary for the DYY Program must be implemented by Watermaster and

approved by the court. Thus, IEUA, TVMWD, and their member agencies executed

written local agency agreements (Local Agency Agreement) to govern performance

obligations under the DYY Program. (See fn. 6.)

Subsequently, the Funding Agreement was amended several times to address

administerial issues, such as completion timing of facilities and changes in sources of

funds. The eighth amendment, dated January 28, 2015, materially changed the

DYY Program by altering the participating entities’ performance criteria via the adoption

of a revised Exhibit G, now named “Chino Basin Conjunctive Use Program (CUP) ‘Dry

Year’ Storage Project Performance Criteria,” and increasing the baseline purchase from

Metropolitan to the region to 40,000 AF of water. According to Exhibit G, performance

is determined by using an operating party’s groundwater baseline. The eighth

11 amendment was adopted after formal notice was provided, the proposal was vetted and

approved by the pool committees, the advisory committee, and Watermaster, and a

technical analysis confirmed the amendment would not cause material physical injury to

the Basin.

G. 2019 Letter Agreement.

In 2017, Metropolitan had excess water from the State Water Project that it needed

to store. After obtaining authorization, Metropolitan recharged around 41,380 AF of

water into the DYY Program storage account from June 2017 to June 2018. This

increase in stored water prompted the Operating Committee to explore the potential of

allowing voluntary withdrawal of water, as opposed to mandatory withdrawal via a

Metropolitan call. The proposed system of voluntary withdrawals “was deemed not to

materially affect the rights of the [DYY Program] parties and local agencies.” Thus, in

2018, IEUA proposed revising the DYY Program, “to increase flexibility for the parties

in the Chino Basin by allowing the region to choose when to buy-out the DYY account

[(voluntary take)] without waiting for [a Metropolitan] ‘call year’ [(mandatory take)].”

Ontario raised questions regarding whether these voluntary withdrawals from the

DYY Program storage account under the proposed system would be subject to

Watermaster assessments as typical production from the Basin, or whether the proposed

voluntary withdrawals would be exempt from Watermaster assessment as part of the

storage and recovery program. Ontario opined that if the voluntary withdrawal system

would materially affect the DYY Program, the proper implementation mechanism would

be a formal amendment to the program documents. IEUA replied, “Based on

12 conversations with [Watermaster], the DYY water is a storage and recovery program, and

is not subject to assessments.” Following subsequent discussions, Ontario stated, “Based

on the information provided by IEUA, [Ontario is] currently neutral regarding the

proposed letter agreement between IEUA and [Metropolitan]. As long as there are

parameters that are undecided or unclear, Ontario cannot take a position of support

because we cannot know the full effects of the proposed changes. Without these details,

which would best be explained and memorialized in an amendment, we will take a wait-

and-see approach regarding impacts, and we reserve the right to address any harm or

detriment that may arise.”

At the Ap Pool’s meeting on September 13, 2018, Watermaster’s General

Manager (Peter Kavounas) noted that “some proposed changes” to the DYY Program had

been circulated, and he planned to sign it “on behalf of Watermaster” but “the changes

don’t commit Watermaster to - - to anything. We actually don’t think a letter is even

required. It’s just [Metropolitan] offering its water at better terms to the parties, which

they’re entitled to do. So if there is a letter, we do plan to sign it.” He added, “It’s a

good thing. Again, it doesn’t affect Watermaster, but we are signatories to the original

DYY. So if they want us to sign a letter of acknowledgement, I will go ahead and do

that.” At the Watermaster Board meeting on September 27, 2018, Mr. Kavounas

informed the Board about Metropolitan’s proposed changes to the DYY Program, and he

characterized them as “favorable to the parties.” He added, “We don’t believe they

constitute a change to the agreement, so we don’t intend to bring an agreement

13 amendment to the board. There may be an acknowledgement letter. If there is, I wanted

to let you know that I would be signing that acknowledgement letter.”

In February 2019, Mr. Kavounas executed the 2019 Letter Agreement between

Watermaster, Metropolitan, IEUA, and TVMWD. According to this agreement, any

water stored after June 1, 2017 “would be purchased from the account by IEUA and

[TVMWD] when the parties pump over the groundwater baseline as defined in

Exhibit G. . . . This pumping could be the result of a response to a call for pumping made

by Metropolitan or it could be through normal operational decisions made by the

individual parties in a given year. Except during a call, the increase in pumping would be

voluntary and performance would be measured by the parties that elect to increase their

pumping. Call provisions would remain unchanged. The parties will receive O&M,

power and treatment credits and be billed for the water when the parties pump over the

groundwater baseline as defined in Exhibit G.”

Initially, the DYY Program allowed Metropolitan to “call on Parties to take stored

water in lieu of [Metropolitan] deliveries and receive an operational credit, or the Parties

may do so voluntarily without receiving the operational credit.” Either way, the parties

“pay [Metropolitan] for the water as if they were receiving ordinary [Metropolitan]

deliveries.” However, the 2019 Letter Agreement allowed the parties “to voluntarily take

water and receive an operational credit without a [Metropolitan] call” when they “pump

over the groundwater baseline as defined in Exhibit G.”

14 H. Impacts of the 2019 Letter Agreement.

As previously noted, all water produced in the Basin was assessed consistent with

the terms of the Judgement and Watermaster Rules and Regulations; each party’s

assessment was based on the amount of its individual production.8 However, following

the 2019 Letter Agreement, Watermaster interpreted it to allow parties to produce (take)

extra stored groundwater from the DYY Program storage account without realizing a

corresponding change or reduction in the production of imported surface water. Thus, in

calculating the FY 2021/22 assessment package, Watermaster exempted CVWD’s

voluntary production of 20,500 AF of water from the DYY account even though the

agreed-to performance criteria authorized it to produce only 11,353 AF in any given year.

Also, for the first time, FWC—a member of the Ap Pool, a customer of IEUA, and an

8 Watermaster filed a request for judicial notice with its respondent’s brief. We reserved ruling for consideration with the merits of the appeal, Having now considered the request, we deny it. The request seeks judicial notice of Metropolitan Resolution 9265—which adopted updates to Metropolitan’s wholesale water rates and charges, including its full service volumetric rates—on the grounds the Metropolitan’s wholesale water rates relate to the cost of water voluntarily withdrawn from the DYY Program storage account. In response, Ontario contends the request should be denied because Watermaster never presented this document to the superior court, and it is irrelevant to the issues currently before this court. We agree with Ontario and deny the request for judicial notice. “Reviewing courts generally do not take judicial notice of evidence not presented to the trial court.” (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3.) In exceptional circumstances, we may, but are not required to, take judicial notice of material that was not presented to the lower court in the first instance. (Ibid.; see Brosterhous v. State Bar (1995) 12 Cal.4th 315, 325.) Watermaster has not presented any exceptional circumstances. We therefore follow the general rule and decline to exercise our discretion to take judicial notice of this evidence. Also, the evidence is unnecessary to our resolution of this appeal. (County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 613, fn. 29 [“materials in question are unnecessary to resolution of the appeal”].)

15 entity not governed by a Local Agency Agreement—voluntarily produced and claimed

2,500 AF of stored groundwater from the DYY account. Watermaster exempted this

voluntary production from FWC’s FY 2021/22 assessment.

Similarly, Watermaster’s interpretation of the 2019 Letter Agreement affected

calculation of the FY 2022/23 assessment package. For example, CVWD shifted off of

imported water by 13,915 AF but claimed DYY production of 17,912 AF (4,000 AF

more). FWC shifted off of imported water by 1,718 AF but claimed DYY production of

5,000 AF (3,282 AF more). The shift off of imported water is fundamental to the DYY

conjunctive use program, and it is mandatory under the terms of the court orders

approving the DYY Program, which adopt Exhibit G performance criteria.

I. Ontario’s Challenge.

In response to Watermaster’s proposed FY 2021/2022 Assessment Package, on

November 1, 2021, Ontario requested an explanation for the exemption of 23,000 AF of

groundwater produced from the DYY Program. Ontario claimed such exemption was

inconsistent with the Judgment which required its assessment. On November 18, 2021,

Watermaster Board directed its staff and legal counsel to evaluate Ontario’s concerns.

Nonetheless, that same day, Watermaster Board approved the FY 2021/2022 Assessment

Package; its staff noted that, if warranted, the assessment package could always be

changed retroactively. Subsequently, discussions continued regarding Ontario’s

concerns. Monte Vista Water District also expressed its concerns related to unrestricted

voluntary takes and their impacts on assessments to Watermaster. Watermaster Board

16 directed staff to consult with the parties, prepare a summary of the issue, and make any

pertinent recommendations.

In preparing its January 27, 2022, report, Watermaster staff noted Ontario asked

that Watermaster cease any further implementation of the 2019 Letter Agreement and

amend the assessment packages as applicable, and Monte Vista Water District

recommended the provisions of the 2019 Letter Agreement be set aside and “clear and

consistent criteria [be established] for how DYY [Program] production should be

assessed by Watermaster.” The staff opined that Ontario’s concerns “appear to be

predominantly: (i) the precedent of how aspects of the [DYY] Program’s administration

are adjusted and (ii) the specific financial consequences resulting from [Metropolitan’s],

IEUA’s, TVMWD’s and Watermaster’s willingness to extend the recovery of imported

water stored in the Basin from dry years to all years for the remainder of the Program.”

When the Watermaster Board discussed Ontario’s concerns on January 27, 2022,

it concluded the following: (1) Watermaster cannot set aside the 2019 Letter Agreement

because the Operating Committee implements operation of the DYY Program according

to the contract provisions, including the 2019 Letter Agreement; (2) Ontario’s complaint

concerns the effects of the 2019 Letter Agreement; (3) Monte Vista Water District now

concludes the 2019 Letter Agreement was not the appropriate vehicle even though Monte

Vista Water District was an integral part in its development; (4) the parties may agree to a

different forward implementation of the DYY Program under existing terms and

conditions including the 2019 Letter Agreement, and instruct Watermaster accordingly;

and (5) the four signatories to the DYY Program (Metropolitan, IEUA, TVMWD, and

17 Watermaster) may formally modify it, and Watermaster may propose such modification

to the Operating Committee. Watermaster staff recommended the parties “could reach

agreement on forward implementation of the DYY Program under existing terms and

conditions; or, [¶] [they] could recommend, upon reaching consensus, one or more DYY

modifications to IEUA, its Member Agencies, and Watermaster to consider and propose

to the Operating Committee, leading to a DYY contract modification.”

When no resolution was reached by February 17, 2022, Ontario filed an

application in the superior court for an order to extend the time under paragraph 31(c) of

the Judgment, from 90 days to 180 days, to challenge Watermaster’s November 18, 2021,

decision approving the FY 2021/2022 Assessment Package, or if such request is denied,

to consider this application to be the challenge. Watermaster, IEUA, FWC, and CVWD

opposed Ontario’s application. On November 3, 2022, the court concluded Ontario’s

challenge to the FY 2021/2022 Assessment Package was really a challenge to the validity

of the 2019 Letter Agreement and denied it as untimely. Ontario appealed.

When Watermaster approved the FY 2022/2023 Assessment Package on

November 17, 2022, Ontario again filed a motion in the superior court challenging the

failure to levy assessments on water voluntarily produced from the DYY Program.

Watermaster, IEUA, FWC and CVWD opposed the motion. On August 21, 2023, the

court denied the motion on the grounds Ontario’s position regarding the validity of the

2019 Letter Agreement was previously rejected, the Judgment does not require

assessment of stored or supplemental water, and Ontario misconstrues the language in the

2019 Letter Agreement because Exhibit G’s performance criteria do not apply to

18 voluntary withdrawals. Ontario appealed. We consolidated the two appeals for purposes

of briefing, oral argument, and decision.

II. DISCUSSION

Ontario challenges the superior court’s rulings that Watermaster was not required

to levy assessments on groundwater produced as part of the DYY Program. It contends

(1) Watermaster’s failure to assess water produced from the DYY Program storage

account is inconsistent with the Judgment and subsequent court orders; (2) Watermaster

violated the Judgment by allowing a nonparty (FWC), without a written storage

agreement, to withdraw stored groundwater through the DYY Program; (3) the 2019

Letter Agreement made unauthorized changes to the DYY Program without providing

notice or following the required approval process; (4) Ontario’s challenge is timely;

(5) the superior court erred in holding that all stored and supplemental water in the Basin

is categorically exempt from assessment; and (6) Watermaster erred in failing to apply

the Exhibit G performance criteria when interpreting the 2019 Letter Agreement.

As we explain, we conclude Ontario’s challenge is timely and the 2019 Letter

Agreement was incorrectly interpreted at best, or imprudently executed at worst.

A. Timeliness of Ontario’s Challenge.

We begin by considering the issue of timeliness. According to the superior court’s

ruling, Ontario’s challenge to Watermaster’s approval of the FY 2021/2022 and

2022/2023 Assessment Packages are thinly veiled challenges to Watermaster’s execution

of the 2019 Letter Agreement and, as such, they are untimely because the 2019 Letter

Agreement was provided to all parties on or around March 20, 2019. The court explained

19 that “under Paragraph 31(c) of the Judgment, Ontario had 90 days to serve and file notice

of any motion or application seeking review of Watermaster’s action in executing the

2019 Letter Agreement.” Thus, according to the court, Ontario had until June 18, 2019,

to challenge Watermaster’s execution of the 2019 Letter Agreement.

On appeal, Ontario contends it is not challenging the 2019 Letter Agreement.

Rather, it is challenging Watermaster’s interpretation of the letter which (1) “made

fundamental changes to the DYY Program, including by allowing parties to flout the

DYY Storage Agreement by ‘voluntarily’ producing far more stored groundwater from

the DYY account than the Exhibit G performance criteria allowed,” and by exempting

such production from assessment; and (2) harmed Ontario when applied to both the FY

2021/2022 and 2022/2023 Assessment Packages. Thus, Ontario argues that its

challenges are timely. (Travis v. County of Santa Cruz (2004) 33 Cal.4th 757, 769

(Travis).) Moreover, Ontario asserts the 90-day period in which a party must file a notice

or application seeking review of an action like the 2019 Letter Agreement never accrued

because Watermaster failed to provide formal notice of its approval of the letter pursuant

to paragraph 31 of the Judgment. Alternatively, Ontario argues that its challenges are

“akin to a challenge to an unlawful tax” because the 2019 Letter Agreement imposes a

continuing or recurring obligation. (Howard Jarvis Taxpayers Assn. v. City of La Habra

(2001) 25 Cal.4th 809, 812.) Respondents Watermaster, IEUA, and CVWD refute each

of these contentions and argue the challenges are barred by laches. We conclude

Ontario’s challenges to both FY 2021/2022 and 2022/2023 Assessment Packages, filed

within 90 days of Watermaster’s action approving them, are timely.

20 Citing Travis, Ontario argues it was Watermaster’s application of the 2019 Letter

Agreement in the FY 2021/2022 and 2022/2023 Assessment Packages, including the new

benefit given to FWC, that harmed Ontario and is the basis for its challenge. We agree.

At issue in Travis was a statute whose 90-day limitations period was triggered differently

depending on whether the challenge was to enactment of an ordinance or to imposition of

conditions under the ordinance. (Travis, supra, 33 Cal.4th at p. 768; see County of

Sonoma v. Superior Court (2010) 190 Cal.App.4th 1312, 1324.) Travis involved two

property owners’ challenge to a county ordinance they alleged violated state law, was

preempted by state and federal law, and unconstitutionally took their property without

compensation by imposing occupancy and rent restrictions as permit conditions. (Travis,

at pp. 762, 764.) Both the trial and appellate court found plaintiffs’ claims were time-

barred; however, the California Supreme Court disagreed. (Id. at pp. 765-766.) The high

court explained that since one of the property owners had complained of injury both from

imposition of the permit conditions and the ordinance’s enactment, the action was in part

timely under Government Code section 65009, subdivision (c)(1)(E), which governs

actions to “‘determine the . . . validity’” of permit conditions and to “‘void, or annul’”

those decisions. (Travis, at pp. 766-767.) According to the court, “[t]his is not a case in

which the plaintiff complains of injury solely from a law’s enactment. . . . [Rather,]

Travis complains of injury arising from, and seeks relief from . . . the County’s

imposition on his second unit permit of conditions required by the [o]rdinance. Having

brought his action in a timely way after application of the [o]rdinance to him, Travis may

21 raise in that action a facial attack on the [o]rdinance’s validity. [Citation.]” (Id. at

pp. 768-769.)

Here, the 2019 Letter Agreement was approved in 2019; however, its effects were

unclear until Watermaster interpreted it as (1) authorizing a credit for voluntary DYY

Program water takes (regardless of Exhibit G’s performance criteria) in calculating

assessments, and (2) allowing nonparties to the Funding Agreement to participate.

Following the adoption of the FY 2021/2022 and FY 2022/2023 Assessment Packages,

Ontario became aware of how Watermaster would interpret and apply the 2019 Letter

Agreement and challenged this interpretation and application via challenging the

Assessment Packages. Ontario is not claiming injury solely from the approval of the

2019 Letter Agreement. Rather, it complains of injury arising from, and seeks relief

from, Watermaster’s exemption of certain groundwater produced from the DYY storage

account in administering assessments inconsistent with the governing Judgment, prior

agreements, and court orders. The exemption of such production is not based on the

Judgment or other agreements governing Basin operations and the DYY Program, but

upon Watermaster’s interpretation of the 2019 Letter Agreement. Having timely

challenged Watermaster’s approval of the FY 2021/2022 and 2022/2023 Assessment

Packages (which reflect Watermaster’s imposition of the 2019 Letter Agreement),

Ontario may raise an attack on the 2019 Letter Agreement as interpreted and applied.

Nonetheless, Watermaster faults Ontario for not raising this challenge to the

FY 2020/2021 Assessment Package which shows a “purported ‘waiver’ of assessments

for voluntary takes when voluntary takes occurring during production year 2019/2020

22 were not assessed in the 2020/2021 Assessment Package, approved by the Watermaster

Board on November 19, 2020.” In response, Ontario asserts that, under Howard Jarvis

Taxpayers Assn. v. City of La Habra, supra, 25 Cal.4th at pages 818-825, “a new

limitation period begins anew with each unlawful assessment package collected by

Watermaster, as does a challenge to the 2019 Letter Agreement. . . . Thus, Ontario had

no need to act sooner and any delay in challenging the 2019 Letter Agreement was not

‘unreasonable and inexcus[]able.’” Again, we agree.

“[I]n Howard Jarvis Taxpayers Assn. v. City of La Habra, supra, 25 Cal.4th 809,

the plaintiffs belatedly challenged the validity of a municipal tax. Though the limitations

period had run on any direct challenge to the validity of the ordinance imposing the tax,

[the California Supreme Court] concluded suit was still permissible because the

continuing monthly collection of the tax represented an alleged ongoing breach of state

law. [Citations.]” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185,

1199.) Here, Ontario has raised the issue of whether the continuing exemption of

voluntary production of DYY Program water from Watermaster’s annual assessment

(according to Watermaster’s interpretation and application of the 2019 Letter Agreement)

represents an ongoing breach of the Judgment and other agreements governing Basin

operations. As Ontario observes, whether it “should have known . . . about

Watermaster’s failure to assess stored water as part of the [FY] 2020/2021 Assessment

Package is irrelevant.”

23 B. The Exemption of Voluntary Production of DYY Program Water from Watermaster’s

Annual Assessment.

According to Ontario, this case boils down to whether Watermaster should be

bound by the terms of the Judgment and several court orders or by its staff’s unilateral

decisions that have million-dollar consequences for certain parties to the Judgment.

Ontario argues “Watermaster’s decision to exempt from assessment stored groundwater

produced from the DYY account cannot be squared with the express language of the

Judgment and other agreements governing Basin operations, nor with Watermaster’s own

practice of assessing all water produced before 2019[ because t]he effect of [this]

decision has been to allow some players in the Basin—notably CVWD and FWC—to

circumvent their financial responsibilities while requiring Ontario and others to make up

the difference.” Respondents disagree, claiming Ontario incorrectly conflates the

production of supplemental water in storage with the production of native groundwater,

and DYY Program withdrawals have historically been exempt from assessments. IEUA

further asserts that FWC was not obligated to have a local agency agreement to

voluntarily take water, and the 2019 Letter Agreement suspended the Exhibit G

performance criteria on voluntary withdrawals apart from utilizing the same baseline

measure for production.

1. Standard of Review.

Since the primary issue before this court involves the 2019 Letter Agreement, and

other agreements governing Basin operations, we exercise our independent judgment and

24 apply de novo review. (Dow v. Honey Lake Valley Resource Conservation Dist. (2021)

63 Cal.App.5th 901, 911.)

2. Analysis.

Although the parties have raised issues regarding (1) whether water from the DYY

Program is withdrawn (not produced), (2) whether stored and supplemental water are

simply two types of ground water, and (3) whether all stored and supplemental water in

the Basin is categorically exempt from assessment, we need not resolve these issues

today because we conclude that Watermaster erred in its interpretation and application of

the 2019 Letter Agreement. As to the other issues raised, we leave them in the hands of

the parties, who are much better suited than the superior and appellate courts to decide.

While our reversal of the superior court’s orders includes a reversal of the lower court’s

determination of these issues, we express no opinion on them, preferring to allow the

parties to resolve them prior to judicial intervention, as they have done in the past. Thus,

our focus is on the interpretation and application of the 2019 Letter Agreement.

As previously noted, the DYY Program is a conjunctive use program specifically

designed to maximize the flexibility and reliability of water supplies, including the

replacement of imported water with stored groundwater during dry years. The program is

governed by three sets of agreements (two of which were approved by the superior

court): (1) the Funding Agreement, (2) the Storage and Recovery Agreement, and (3) the

Local Agency Agreements. Watermaster oversees the program by virtue of the Storage

and Recovery Agreement and its seat on the Operating Committee. As the superior

court’s 2004 order emphasized, the DYY Program was designed to “provide broad

25 mutual benefits to the parties to the Judgment,” and the Judgement prohibits Watermaster

from approving any Annual Operating Plan that “will have a substantial adverse impact

on producers.”

At its inception, the DYY Program authorized Metropolitan (1) to place up to

25,000 AF of water per year9 into storage in wet years, and (2) in dry years, to require

parties with local agency agreements (Chino, Chino Hills, Ontario, Pomona, Upland,

CVWD, Jurupa Community Services District, and Monte Vista Water District) to

produce 33,000 AF of groundwater from the storage account (pursuant to Performance

Criteria) while simultaneously requiring these parties to forgo using an equivalent

amount of imported water. The Performance Criteria (Exhibit G attached to the Funding

Agreement and revised in 2015) effectuates the goal of the DYY Program, which is to

provide a balance between the reduction of imported surface water deliveries and the

corresponding increase in the production of stored groundwater.

Moreover, the foundation of the DYY Program is the Local Agency Agreements

which define each agency’s facilities and annual recovery capacity, including

performance targets (reducing their use of imported water deliveries and extracting an

equivalent amount of DYY Program water) “to which that local agency has committed

itself in exchange for its share of the benefits available under the [2003] Funding

Agreement.” As the superior court stated in 2003, “[I]t is clear that until Watermaster

and this Court approve the Local Agency Agreements and Storage and Recovery

9 Unless Watermaster approves a greater rate (100,000 AF max).

26 Application, or some equivalent approval process is completed, the storage and recovery

program cannot be undertaken.” The court’s order approving the Funding Agreement

indicates that “the specific location and operation of the facilities necessary to accomplish

this commitment must . . . be analyzed by Watermaster,” and approval “will take the

form of Watermaster approval of the Local Agency Agreements.”

For nearly two decades, the DYY Program accomplished its goals without any

issues. However, in June 2017, Metropolitan began storing excess water (41,380 AF in

one year) in the DYY Program storage account. This excess stored water prompted the

Operating Committee (five members consisting of two representatives from Metropolitan

and three representatives chosen by IEUA, TVMWD, and Watermaster10) to propose

voluntary withdrawals, as opposed to Metropolitan calls. This proposed system of

voluntary withdrawals “was deemed not to materially affect the rights of the

[DYY Program] parties and local agencies.” Thus IEUA suggested revising the

DYY Program, “to increase flexibility for the parties in the Chino Basin by allowing the

region to choose when to buy-out the DYY account [(voluntary take)] without waiting for

[a Metropolitan] ‘call year’ [(mandatory take)].” The revision came in the form of the

2019 Letter Agreement.

Watermaster does not dispute that the 2019 Letter Agreement operationally

changed the DYY Program to broaden participation and increase the potential for the

10 Metropolitan has two appointees and two of its member agencies on the five- member Operating Committee, giving it considerable influence; yet it is not a party to this litigation.

27 storage and recovery of imported water. Mr. Kavounas, Watermaster’s General

Manager, characterized this change as “favorable to the parties,” and claimed that it will

not “affect Watermaster.” However, that was not the case. As a result of the 2019 Letter

Agreement, two agencies (CVWD and FWC—a party not subject to the Performance

Criteria in Exhibit G) voluntarily withdrew water from the DYY Program storage account

during FY 2020/2021 and 2021/2022. Subsequently, when calculating annual

assessments, Watermaster ignored the absence of a Local Agency Agreement (FWC) and

the performance criteria set forth in Exhibit G (CVWD) and exempted these takes. These

exemptions decreased CVWD’s and FWC’s assessments, while increasing the

assessments of other parties, such as Ontario. Nonetheless, Watermaster maintains that

this change in the allocation of assessments among the parties is not relevant because it

has no effect on the health of the Basin.

In challenging Watermaster’s approval of the FY 2021/2022 and 2022/2023

Assessment Packages, Ontario contends Watermaster’s interpretation and application of

the 2019 Letter Agreement violated the Judgment and the agreements that created the

DYY Program. We agree.

It bears repeating that the DYY Program’s goal is to provide greater water supply

reliability by storing water in advance of dry periods and pumping the stored water in lieu

of receiving imported water during droughts. To that end, the program’s agreements

involved eight entities with water storage facilities: Chino, Chino Hills, Ontario,

Pomona, Upland, CVWD, Jurupa Community Services District, and Monte Vista Water

28 District (collectively referred to as Operating Parties).11 Specific performance criteria set

forth in Exhibit G dictated the amount of water Metropolitan could require these

Operating Parties to produce in lieu of imported water. In 2015, an Amendment No. 8 to

the Funding Agreement materially changed the program by altering the Operating

Parties’ performance criteria. This amendment was adopted after formal notice was

afforded to the parties, and the proposed change was vetted (via a technical analysis) and

approved by the pool committees, the advisory committee, and Watermaster.

When the idea of revising the DYY Program to include voluntary takes was

introduced, IEUA initiated discussion with the Operating Parties. Recognizing the

proposed change was a material departure from the program’s initial goal, Ontario took a

neutral position and refused to support the change “[a]s long as there are parameters that

are undecided or unclear . . . because we cannot know the full effects of the proposed

changes.” Recommending the change be “explained and memorialized in an

amendment,” Ontario reserved “the right to address any harm or detriment that may

arise” based on possible “impacts.”

11 The Funding Agreement states that “[t]he proposed groundwater storage Program consists of the facilities described in Exhibit H (the ‘Facilities’). The agencies within the service areas of IEUA and TVMWD responsible for operating the respective Facilities (‘Operating Parties’) are . . . listed in Exhibit H. IEUA and TVMWD will enter into agreements with Operating Parties within their respective service areas that will require such Operating Parties to operate and maintain the Facilities.” The Operating Parties listed in Exhibit H include Pomona, Monte Vista Water District Chino, Upland, Chino Hills, CVWD, Ontario, FWC, and Jurupa Community Services District; however, FWC never opted in as an Operating Party.

29 Despite Ontario’s concerns and recommendations, Metropolitan prepared the 2019

Letter Agreement wherein it acknowledged the storage of 39,000 AF of water, and

expressed appreciation for the “effort that the parties have shown to maximize storage

during [FY 2017/2018].” According to the letter, “the parties” agreed that water stored

after June 1, 2017, “would be purchased from the account by IEUA and [TVMWD] when

the parties pump over the groundwater baseline as defined in Exhibit G.” Exhibit G was

included with the letter. Metropolitan further stated that this pumping “could be the

result of a response to a call” by Metropolitan or “through normal operational decisions

made by the individual parties in a given year. Except during a call; the increase in

pumping would be voluntary and performance would be measured by the parties that

elect to increase their pumping. Call provisions would remain unchanged. The parties

will receive O&M, power, and treatment credits and be billed for the water when the

parties pump over the groundwater baseline as defined in Exhibit G.”

As Ontario points out, the effect of the 2019 Letter Agreement (as interpreted and

applied by Watermaster) was to “defy the rules set forth in the documents that establish

and govern the operation of the DYY Program, including the 2003 Funding Agreement,

the 2003 court order adopting it, and the DYY Storage Agreement and its associated

court order” by allowing FWC (a nonparty) to voluntarily produce water from the

program storage account without a Local Agency Agreement, by letting CVWD to

voluntarily produce double its allocated shares of stored water regardless of its

performance criteria, and by permitting these voluntary extractions without any

corresponding reductions in imported water. We agree.

30 To begin with, in the order approving the Storage and Recovery Agreement for the

DYY Program, the superior court recognized that “[t]he Judgment enjoins storage or

withdrawal of stored water ‘except pursuant to the terms of a written agreement with

Watermaster . . . [that] is [in] accordance with Watermaster regulations.’ . . . The Court

must first approve, by written order, the Watermaster’s execution of ‘Ground Water

Storage Agreements.’” FWC does not have such agreement. Nonetheless, respondents

contend that FWC was not obligated to have a Local Agency Agreement for voluntary

withdrawal because additional facilities and performance standards were not involved,

and there is nothing in the Funding Agreement or Local Agency Agreements that restrict

the withdrawal of DYY Program water to parties with Local Agency Agreements.

Watermaster further asserts there is no violation of the Judgment because the Storage and

Recovery Agreement for the DYY Program satisfies paragraph 28 of the Judgement, and

FWC is not the storing party; rather, Metropolitan owns the water in the DYY Program

storage account, and IEUA acts as the manager of the account. According to

Watermaster, (1) the Local Agency Agreements were required to enforce the

“performance targets to which [each Operating Party] has committed itself in exchange

for its share of the [capital] benefits available under the [2003] Funding Agreement;” and

(2) since FWC received no capital benefits from Metropolitan, it had no performance

obligations (as set forth in Exhibit G), and nothing in the DYY Program agreements

suggests that a Local Agency Agreement is required for a voluntary withdrawal because

the language is limited to Exhibit G’s application to Metropolitan calls only. We are not

persuaded by respondents’ argument.

31 None of the three sets of DYY Program agreements considered a situation where

the Operating Parties, or nonparties to the program, would be allowed to produce water

from the program’s storage account absent a court-approved written agreement with

Watermaster. To hold otherwise ignores the Judgment, the DYY Program agreements,

the conduct of all entities involved in the DYY Program, and the superior court’s order

approving the program. By using the absence of voluntary withdrawal language to justify

their position, respondents seek to have their cake and eat it too. This is not permitted.

“In the interpretation of contracts, the paramount consideration is the intention of the

contracting parties ‘. . . as it existed at the time of contracting, so far as the same is

ascertainable and lawful.’ [Citations.] . . . [¶] The words used in a contract must be

given their ordinary meaning, unless there is evidence that the parties intended to use

them in a unique sense or to give the words some different meaning. [Citations.] If a

contract is reasonably susceptible to more than one interpretation or if it contains latent or

patent ambiguities, the court may use extrinsic evidence to clarify the uncertainties;

extrinsic evidence is relevant and material to prove a meaning to which the language of

an instrument is reasonably susceptible. [Citations.] [¶] In construing a contract, it is

not a court’s prerogative to alter it, to rewrite its clear terms, or to make a new contract

for the parties. [Citations.] Courts will not add a term to a contract about which the

agreement is silent. [Citations.]” (Moss Dev. Co. v. Geary (1974) 41 Cal.App.3d 1, 9.)

As IEUA acknowledges, DYY Program water is stored pursuant to the Storage

and Recovery Agreement between Watermaster, IEUA, and TVMWD. Withdrawals are

governed by the Funding Agreement, which sets the terms and conditions under which

32 water can be stored within the Basin and later called for production by Metropolitan. The

Funding Agreement identifies the agencies within IEUA’s and TVMWD’s service areas

as Operating Parties, lists the Operating Parties in Exhibit H (Pomona, Monte Vista

Water District, Chino, Upland, Chino Hills, CVWD, Ontario, and Jurupa Community

Services District12), establishes the performance criteria for each Operating Party, and

states that IEUA and TVMWD will enter into separate agreements with every one of

them. Additionally, the Local Agency Agreements specify the amount of grant funds

which would be passed through from IEUA to the Operating Parties for the purpose of

constructing infrastructure to produce DYY Program water. If FWC was not obligated to

have a Local Agency Agreement because it was not a storing party, i.e., it received no

capital benefits from Metropolitan and had no performance obligations (as set forth in

Exhibit G), then why does the Funding Agreement reference and identify Operating

Parties? Why does the Storage and Recovery Agreement state that “no person shall store

water in, and recover water from the Chino Groundwater Basin through the Storage and

Recovery Program, without a Storage and Recovery agreement with Watermaster?” Why

are the Operating Parties required to enter into Local Agency Agreements? Why does the

2019 Letter Agreement include Metropolitan’s appreciation for the “effort that the parties

have shown to maximize storage during [FY 2017/2018]?” Who are the parties

Metropolitan was referring to if not the Operating Parties identified in Exhibit H to the

Funding Agreement? Contrary to respondents’ claims, the agreements (including the

12 Again, FWC never opted in as an Operating Party.

33 2019 Letter Agreement) that govern the DYY Program do not apply to entities that do not

have a Local Agency Agreement.

Moreover, as Ontario points out, Local Agency Agreements “are storage and

recovery agreements that detail the means by which DYY [Program] water is recovered,

including the [Operating Party’s] specific responsibilities relating to the pumping of

stored water.” Thus, water can no more be recovered (produced/withdrawn) without a

Local Agency Agreement than it can be stored without such agreements. Nor can the

Exhibit G performance criteria be suspended (for any production, voluntary or not)

without compromising the integrity of the DYY Program. In other words, to allow the

voluntary withdrawal of stored water, and in amounts greater than that permitted under

the Exhibit G performance criteria, would create an imbalance between the use of

imported surface water and stored water which the program had established. Yet, that is

what was done by allowing CVWD to voluntarily produce double its allocated shares of

stored water regardless of its performance criteria and without a corresponding reduction

in imported water.

IEUA dismisses the voluntary productions as merely “operational changes” to the

DYY Program, contending the 2019 Letter Agreement was “within the operational

flexibility afforded the Operating Committee in the [2003] Funding Agreement to adapt

to changed circumstances.” Not so. Operational changes are allowed, but only if they do

34 not materially affect the rights of the DYY Program parties and local agencies.13 Such

was not the case here since an Operating Party (CVWD) has voluntarily produced double

its allocated shares of stored water from the DYY Program storage account, a nonparty

has voluntarily produced stored water from the DYY Program storage account,

Watermaster has exempted these voluntary productions from assessment, and Ontario’s

rights were materially affected when its assessments for both FY 2021/2022 and

2022/2023 increased due to the exemption of voluntary production of water from the

DYY Program storage account. In other words, Ontario suffered a financial injury as a

result of the 2019 Letter Agreement.

Watermaster takes issue with our conclusion that Ontario’s financial injury

constitutes a significant adverse impact. It argues that this term is found in the Judgment

only and originated in 1970 with the enactment of the California Environmental Quality

Act. Subsequently, during the negotiation of the Peace Agreement, the term material

physical injury was added and defined as any “material injury that is attributable to the

Recharge, Transfer, storage and recovery, management, movement or Production of

water, or implementation of the OBMP, including, but not limited to, degradation of

water quality, liquefaction, land subsidence, increases in pump lift (lower water levels)

and adverse impacts associated with rising groundwater.” It specifically exempted any

13 Section 5.2(c)(iv)(b) of the Peace Agreement states that Watermaster is to give first priority to storage and recovery programs that provide broad mutual benefits to the parties to the Judgment.

35 “economic injury.” Thus, Watermaster argues Ontario’s financial injuries, which are

solely economic injuries, are not redressable. We disagree.

Use of the term substantial adverse impact is not limited to the Judgment. It was

used in the superior court’s 2003 order approving the Funding Agreement, Watermaster’s

motion for approval of the Storage and Recovery Agreement, the Storage and Recovery

Agreement, the 2004 order approving the Storage and Recovery Agreement, and the

court’s May 12, 2023, tentative ruling. In 2003, when the Funding Agreement was

approved, the court acknowledged the Judgment’s requirement that “groundwater storage

agreements are to contain terms that will preclude operations having a substantial

adverse impact on other producers.”

When Watermaster moved for approval of the Storage and Recovery Agreement,

it also acknowledged the Judgment’s requirement that “all storage agreements shall by

their terms preclude operations which will have a substantial adverse impact on other

Producers.” Watermaster noted that “[t]his requirement is similar to the requirement

contained in the Peace Agreement and Watermaster’s Rules and Regulations that

Watermaster ensure that no Material Physical Injury is caused to any party or the Basin.

Thus, through Part III of the Agreement,[14] Watermaster references the broad

requirement that the storage of water under the Agreement must not cause either

14 Section III. of the Storage and Recovery Agreement, entitled “No Material Physical Injury” states: “The Storage and Recovery of Supplemental Water stored under this Agreement will not cause Material Physical Injury or a substantial adverse impact to any party to the 1978 Judgment or to the Basin itself.” “Or” is “used as a function word to indicate an alternative.” (https://www.merriam-webster.com/dictionary/or, as of April 17, 2025.)

36 Material Physical Injury or a substantial adverse impact to any party or to the Basin.” If

substantial adverse impact is similar to material physical injury, then why use both terms?

Why was the term material physical injury defined, but substantial adverse impact was

not?

The 2004 order approving the Storage and Recovery Agreement acknowledges the

Judgment’s provision in paragraph 28 that “agreements for storage . . . must include

terms that will ‘preclude operations which will have a substantial adverse impact on

other producers.’” It further provides, “The DYY Storage Agreement calls for the

development of Annual Operating Plans, which will provide estimated schedules and

locations for the delivery of all water into and out of storage, on a monthly basis, for the

upcoming fiscal year. The Annual Operating Plan is to be submitted to Watermaster for

approval and is to have sufficient detail to allow Watermaster to assess the potential for

any adverse impacts on producers. Pursuant to Judgment paragraph 28, Watermaster

may not approve an Annual Operating Plan that will have a substantial adverse impact

on producers.” And the superior court’s tentative ruling for May 12, 2023, reiterated its

prior orders’ (2003 and 2004) acknowledgment that “groundwater storage agreements

are to contain terms that will preclude operations having a substantial adverse impact on

other producers.”

Given the use of the conjunctive “or” when referencing both substantial adverse

impact and material physical injury, we conclude the two terms do not share the same

meaning.

37 Also, the “changed circumstance” that necessitated a modification to the

DYY Program was Metropolitan’s receipt of excess water (above the amount determined

to meet the needs of the program) that needed to be stored. To the extent this excess

stored water surpassed the limitations initially imposed by the DYY Program agreements,

the Operating Committee15 should have proposed an amendment to the Funding

Agreement, similar to Amendment No. 8 in 2015. This is especially true given the

Operating Committee’s decision to expand the DYY Program beyond its originally

intended purpose by allowing voluntary takes never contemplated by the program’s

initial agreements.

3. Summary.

To summarize, the DYY Program was created to provide a buffer against drought,

allowing Metropolitan to offset water it would otherwise import into the Basin with water

stored in the DYY Program storage account. However, in 2018, Metropolitan requested,

and was allowed, to put excess water into the DYY Program storage account. It then

persuaded the Operating Committee (of which it possessed two votes) to propose the

2019 Letter Agreement. This agreement fundamentally changed the recovery aspect of

the DYY Program by allowing voluntary production of water from the storage account

regardless of party status or performance criteria. The impact of these voluntary takes

materially affected the rights of the Operating Parties and other local agencies when

15 If not the Operating Committee, then Watermaster should have proposed an amendment. The Storage and Recovery Agreement provides that any storage and recovery of supplemental water “shall occur only under Watermaster’s control and regulation in accordance with the Judgment and the Peace Agreement.”

38 Watermaster interpreted and applied the 2019 Letter Agreement inconsistently with the

original DYY Program agreements, the Judgment, and prior court orders when it

calculated/approved the FY 2021/2022 and 2022/2023 Assessment Packages.

Accordingly, we reverse the orders of the superior court and direct Watermaster to

correct and amend the FY 2021/2022 and 2022/2023 Assessment Packages consistent

with the original DYY Program agreements, the Judgment, and prior court orders.

III. DISPOSITION

The November 3, 2022, and August 23, 2023, orders are reversed. The superior

court is directed to enter new orders granting Ontario’s challenges, and directing

Watermaster to correct and amend its FY 2021/2022 and 2022/2023 Assessment

Packages. The issues of (1) whether water from the DYY Program is withdrawn (not

produced), (2) whether stored and supplemental water are simply two types of ground

water, (3) whether all stored and supplemental water in the Basin is categorically exempt

from assessment, and (4) the future viability and application of the 2019 Letter

Agreement should be resolved by the parties prior to judicial intervention. Ontario shall

recover its costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

McKINSTER Acting P. J. We concur:

MILLER

J.

CODRINGTON

J.

39