A week ago, when Superior Court Judge Shelleyanne W.L. Chang ruled that senior water rights holders could ignore letters from the state curtailing their access for lack of constitutionally-guaranteed due process of law, the reaction was markedly different from both sides.

Attorney Steve Herum, who represents several water districts, called it “a complete victory.” A spokesman for the State Water Resources Control Board said the curtailment letters just needed a bit of tweaking to make clear that water users would get a full hearing before getting hammered. Board staff counsel David Rose told the Sacramento Bee, “I don’t think, from the board’s perspective, there is a practical impact” from the judge’s ruling.

Based on that assessment, the water board announced its first proposed fine (pdf) against a pre-1914 rights holder for illegal use of water. Byron-Bethany Irrigation District in the Sacramento-San Joaquin Delta area was informed Monday it would have to pay $1.5 million for diverting water for two weeks after being told to stop. The district provides water to 160 farms and the planned community of Mountain House (pop. 15,000), a decade-old exburb 60 miles outside of San Francisco.

The district has 20 days to appeal to the board for a hearing of the board's own draft Administrative Civil Liability Complaint. If they do and lose, or just refuse to pay, the fine can reach $5.18 million. The district's attorney, Daniel Kelly, told the Sacramento Bee he doubts the water district can get an impartial hearing.

Mountain House, developed with a $1-billion investment from the California Public Employees' Retirement System (CalPERS), recently struck a deal to buy water for six months from a neighboring district. The New York Times profiled the community in 2008 when its housing stock was deemed the most financially stressed in the nation following the Crash.

The average home was $122,000 underwater. Only 10% of homeowners in the zip code owed less money on their homes than they were worth. Many of the loans were interest-only with loaded back ends and those homeowners, despite being relatively high-wage earners, were hurting—before they ran out of water and faced big fines from the state.

Last year, it was estimated that CalPERS' loss on paper for its investment had improved from $1 billion to $870 million. It was thought the giant pension fund, which was punished in the housing crash for its large real estate portfolio, could recoup its investment within 10 years. But those were heady days, when the drought was only three years old.

Nearly 100 senior rights holders, mostly up north, were notified in mid-June that the fourth year of drought made it necessary to curtail their access to surface water. That has happened just once before and never with this wide a scope. In addition to its due process claim, the lawsuit brought by the West Side Irrigation District, Central Delta Water Agency, South Delta Water Agency and Woods Irrigation Company sought court validation of riparian (water’s edge) and pre-1914 rights over any other state considerations.

That didn’t happen. But this case isn't the only legal battle over the state's water authority. And more are coming. Andrew Tauriainen, an attorney with the state water board, said it was “highly likely” that more enforcement notices of possible fines would be sent out soon. But that won't take the sting out of being the first.

The head of the water district complained that they were being made an “arbitrary example” of, and Tauriainen agreed. “Byron-Bethany was very publicly stating that it wasn’t going to stop diversions, which as you can imagine, draws the attention of regulators,” he told the Los Angeles Times.

–Ken Broder

To Learn More:

California Drought Agency Goes After Another Farm District (by Dale Kasler, Sacramento Bee)

California Farm District Accused of Diverting Water (by Adam Nagourney, New York Times)

State Levies $1.5 Million Fine for Illegal Water Use (by Kurtis Alexander, San Francisco Chronicle)

State Proposes $1.5-Million Fine of Water District for Improper Diversions (by Matt Stevens, Los Angeles Times)

Superior Court Blocks State Curtailment of Older Water Rights (by Ken Broder, AllGov California)