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II. The Monterey Agreement and Monterey Amendments
During the late 1980s and early 1990s, ongoing drought conditions in California
diminished the supply of water in the SWP, and generated “Article 18 disputes” among
state’s agricultural water contractors, urban water contractors, and DWR regarding the
distribution of water from the SWP. In the fall of 1994, DWR and its contractors met in
Monterey to discuss the allocation of SWP water in times of shortage. These so-called
“Article 18 negotiations” morphed into an attempt to implement an “omnibus revision of
the SWP long-term contracts and their administration” (see PCL, supra, 83 Cal.App.4th
at p. 901), and, in early 1995, DWR and a number of contractors took the first step
toward that end by agreeing to a statement of principles known as the Monterey
Agreement.
For purposes of the appeal before us today, the Monterey Agreement embodied
two key principles: first, it contemplated that the then-existing long-term contracts with
DWR would be amended to allow for the reallocation of the entitlements to SWP water
which the state’s agricultural contractors and urban contractors had previously enjoyed,
and, second, it envisioned that these amendments would authorize contractors to transfer
SWP water amongst themselves on a “willing buyer/willing seller” basis. (California
Oak, supra, 133 Cal.App.4th at p. 1228; PCL, supra, 83 Cal.App.4th at pp. 900-902.)
In the years following the Monterey Agreement, various DWR contractors began
implementing the agreement’s principles by negotiating and purchasing transfers of SWP
water. These consummated transfers of entitlements to SWP water became known as the
Monterey Amendments. In 1999, the Castaic Lake Water Agency (CLWA) purchased a
transfer of an entitlement to 41,000 AFY of SWP water from the Kern County Water
2
Agency (KCWA). (California Oak, supra, 133 Cal.App.4th at p. 1228.)
2
“CLWA is a public agency created and governed by the uncodified Castaic Lake
Water Agency Law. (Stats. 1962, 1st Ex. Sess., ch. 28, §1, p, 208 . . . .) CLWA was
formed to provide a . . . supply of imported water to . . . water purveyors of the Santa
Clarita Valley. . . . CLWA contracts with [DWR] for water from the [SWP] . . . , treats
those supplies at its treatment plants, and delivers the treated water to [local] water
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