PUBLIC ENTREPRENEURSHIP: A CASE STUDY IN GROUND WATER BASIN MANAGEMENT _____ ELINOR OSTROM UNIVERSITY OF CALIFORNIA - LOS ANGELES Public Entrepreneurship: A Case Study in Ground Water Basin Management A dissertation submitted in partial satisfaction of the requirements for the degree Doctor of Philosophy in Political Science by Elinor Ostrom Final Examination for the Degree Doctor of Philosophy Tuesday, September 29, 1964, 1:00 P.M. Room 4269, Social Science Building Committee in charge: Professor Dwaine Marvick, Chairman Professor Richard P. Longacre Professor Ernest A. Engelbert Professor Oscar Grusky Professor Jack Hirshleifer Professor Warren A. Hall 1965 ii The dissertation of Elinor Ostrom is approved, and it is acceptable in quality and form for publication on microfilm: Committee Chairman University of California, Los Angeles 1965 iii TABLE OF CONTENTS Page LIST OF TABLES ......................................... xi LIST OF ILLUSTRATIONS .................................. xiii PREFACE ................................................ xiv VITA and FIMDS OF STUDY ................................ xvi ABSTRACT OF THE DISSERTATION ........................... xvii Section I Introduction Chapter I. PUBLIC ENTREPRENEURSHIP AND THE WEST BASIN EXPERIENCE ..................................... 2 Public Entrepreneurship as a Focus of Inquiry ................................... 2 The Ground Water "Problem" of West Basin....... 9 The Structure of the West Basin Water Industry--1945 ................................ 17 Water Producers ............................. 17 Water Wholesalers ........................... 23 Other Water Service Agencies................. 25 The Water Industry and the Basin in 1945 ..................................... 28 The Course of Public Entrepreneurship-- 1945-1963 ..................................... 30 Formation of the West Basin Water Association.................................. 30 The Provision of an Alternate Supply ........ 31 iv Chapter Page The Rationing of West Basin Water Supplies..................................... 33 The Creation of a Barrier Against the Sea ..................................... 37 The Search for an Appropriate Management Enterprise ....................... 39 Joint Operation of a Conjunctive Use System .................................. 44 The Structure of the West Basin Water Industry--1963................................. 48 Water Producers ............................. 49 Water Wholesalers ........................... 62 Agencies Concerned with Ground Water Basin Management............................. 68 The Water Industry and the Basin in 1963 ........................................ 83 Summary ...................................... 87 Section II Background to Action II. WEST BASIN: ITS POTENTIAL UTILITY AS A COMPONENT IN THE CONJUNCTIVE MANAGEMENT OF A WATER SUPPLY SYSTEM ........................ 93 The Structure of the Physical System........... 99 Topography................................... 99 The Inland Valleys and the River Systems ..................................... 101 The Coastal Plain and Underlying Ground Water Basins ......................... 104 Structural Constraints on Ground Water Basin Management............................. 113 Factors Affecting the Quantity and Quality of Water Supply ....................... 118 v Chapter Page The Local Water Crop......................... 119 Seasonal and Cyclic Variation in Precipitation .............................. 122 The Effect of Ground Water Basins on the Quantity and Quality of Water Supply ...................................... 124 The Effect of Urban Development on the Quantity and Quality of Water Supply......... 128 The Effect of Artificial Replenishment on the Quantity and Quality of Local Water Supplies .............................. 143 Consequences of the Quantity and Quality of the Water Supply System on the Management of West Basin .................... 153 III. INSTITUTIONAL ARRANGEMENTS AND THEIR EFFECT ON THE ALLOCATION AND DEVELOPMENT OF GROUND WATER RESOURCES ................................. 159 The Market as an Institutional Facility for the Allocation of Resources ................ 161 Private Goods ............................... 163 Public Goods ................................ 164 The Market and the Allocation of Ground Water ................................. 170 California Ground Water Law and the Allocation of Ground Water Resources .......... 181 Allocation of Private Rights to Ground Water ................................ 182 Legal Questions Involved in Developing a Conjunctive Use System .................... 202 Political Arrangements for the Allocation of Ground Water Resources ..................... 209 The Effect of Institutional Arrangements on the Development and Allocation of Water Resources in West Basin.................... 216 vi Chapter Page Section III The West Basin Experience in Public Entrepreneurship IV. ORGANIZATION FOR DELIERATION AND JOINT ACTION ......................................... 233 The Structure of the West Basin Water Association................................... 234 Membership ................................. 234 Finances ................................... 241 Voting Rules ............................... 242 Officers and the Executive Committee ....... 244 Sanctions .................................. 251 The Executive Secretary and the Staff ...... 253 The Association as an Instrument of Political Action ............................. 259 Summary .................................... 264 V. THE IMPORTATION OF A SUPPLEMENTAL WATER SUPPLY ......................................... 270 Investigation of Alternatives ................ 270 The Southwest Water Fact-Finding Committee Report ........................... 275 The Choice of Colorado River Water as a Supplemental Supply ........................ 277 Conditions of Access ....................... 277 The Campaign for Popular Assent............. 283 The Campaign to Gain Metropolitan's Approval of a Smaller District ............. 288 The Second Campaign for Popular Consent ... 290 The Establishment of a Municipal Water District .............................. 291 vii Chapter Page Expansion through Annexation ............ 293 The Function of the West Basin Municipal Water District .............................. 298 VI. ADJUDICATION TO RATION THE LOCAL SUPPLY ....... 303 Consideration of Litigation ................. 303 Initiation of Litigation .................... 307 Reference: Round One ....................... 308 The First Report of the Referee ........... 309 Objections to the Referee's Report ........ 314 Negotiation: Round One ..................... 317 The Association Intervenes ................ 321 Parameters of the Negotiation ............. 324 The Interim Agreement ...................... 333 The Effect of the Interim Agreement on Signatory Parties ..................... 334 The Effect of the Interim Agreement on Non-Signatory Parties ................. 343 Reference: Round Two .................... 348 Negotiation: Round Two .................. 352 Final Judgment and Appeal .................. 358 The Hawthorne Appeal ..................... 360 The Effect of the Final Judgment ........ 366 VII. THE CREATION OF A BARRIER AGAINST THE SEA .... 376 Financing a Prototype Experiment ........... 379 Formation of Plans ....................... 379 Legislative Strategy ..................... 382 Legislative Implementation ............... 387 viii Chapter Page Designing Institutional Arrangements for a Permanent Barrier ....................... 388 Consideration of Alternative Institutional Arrangements .................. 388 Legislative Strategy and Implementation ..... 390 The Prototype Experiment ...................... 396 Competition for the State Funds ............. 396 Designing the Experiment .................... 397 Construction of Injection Wells ............. 400 Results of the Experiment ................... 401 The Attempt to Establish a Permanent Barrier Program ............................... 405 Consideration of Alternatives ............... 405 Emergency Funding .......................... 409 Formation of Zone II .......................... 410 VIII. DESIGNING AND CREATING AN APPROPRIATE MANAGEMENT SYSTEM ............................. 415 The Water Replenishment District Act ......... 417 Constituting a Management System for West Basin ................................... 430 Negotiating the "Constitutional" Settlement ................................. 434 Establishing the Key Management Enterprise ................................. 455 IX. THE ORGANIZATION OF A GROUND WATER BASIN MANAGEMENT PROGRAM ............................. 462 The Management of Supply ..................... 464 The Attempt to Gain a Guaranteed Local Supply ............................... 464 ix Chapter Page The Acceleration of the Barrier Program ..................................... 475 The Development of New Sources of Replenishment Water ......................... 482 The Management of Demand ...................... 493 The Establishment of a Pro-Rata Rationing ................................... 493 The Evolution of a Decentralized Political Decision-Making System .............. 510 Section IV Conclusion X. AN EVALUATION OF THE WEST BASIN EXPERIENCE IN PUBLIC ENTREPRENEURSHIP ....................... 524 Optimal Use of Ground Water Supplies in a Conjunctive Use System .................... 525 The Economic Value of Ground Water Rights........................................ 527 An Optimal Use Pattern for Surface and Ground Water Supplies .................... 530 The Actual Use Patterns in West and Central Basins ............................... 531 The Benefits and Costs of the Barrier Program ...................................... 541 Benefits and Costs of the Spreading Program ...................................... 560 An Alternative Program for the Conjunctive Use of West and Central Basins ...................................... 562 Institutional Arrangements and the Structure of Incentives for Non-Optimal Conduct ...................................... 568 Institutional Arrangements to Facilitate More Optimal Conduct ........................... 582 x Chapter Page Some of the Problems of Public Entrepreneurship ................................. 588 BIBLIOGRAPHY .......................................... 598 xi LIST OF TABLES Table Page I. Source and Quantity of Water Supplied by Municipalities (in acre-feet) ................. 21 II. Total Water Supply of West Basin Enterprises, 194-1945 (in acre-feet)........... 29 III. Source and Quantity of Water Supplies by Municipalities, 1963 (in acre-feet)......... 54 IV. Source and Quantity of Water Supplied by Private Water Companies during 1963 (in acre-feet) ................................ 57 V. Total Water Supply of West Basin Enterprises, 1962-63 .......................... 84 VI. Percentage of Total Ground Water Withdrawals Supplied by Different Classes of Water Users ........................ 85 VII. The Effect of the Preferential Rule on the Water Available to Agencies in Central and West Basins ............................... 141 VIII. Colorado River Water: Estimates and Actual Use for Direct Replenishment Purposes ...................................... 149 IX. Attendance at 1963 Board of Directors' Meetings, West Basin Water Association ........ 239 X. Current Composition of the Executive Committee, West Basin Water Association, 1963 .......................................... 247 XI. Annexation Levies and Tax Rates for Subareas of the West Basin Municipal Water District ................................ 297 XII. Comparison Between 1945 and 1949 Prescriptive Rights (Thirty-five Producers) ... 330 xii Table Page XIII. Partial Listing of the Water Offered and Released in the West Basin Exchange Pool Under the Final Judgment ...................... 370 XIV. Quantity of Water Purchased for Spreading and Estimated Overdrafts, 1960-64 ............. 474 XV. Capital Investment in the Barriers............. 546 XVI. Annual Cost of Maintaining Barriers and Producing 150,000 Acre-feet of Ground Water.......................................... 548 XVII. Estimated Peaking Requirements for West and Central Basins (1962-63) .................. 554 XVIII. The Annual Cost of the Conjunctive Use System Being Placed into Operation in West and Central Basins ............................. 564 XIX. The Annual Cost of an Alternative Conjunctive Use System ......................... 565 xiii LIST OF ILLUSTRATIONS Figure Page 1. Costs of Ground Water Production.................. 175 2. Benefits from Water Spreading..................... 178 3. Benefits from Water Spreading..................... 179 4. Method of Supplying Winter and Summer Daily Demands in an Optimal Conjunctive Use System ..... 532 5. Annual Demand Pattern for Hypothetical Water Supplier in a Conjunctive Use System ........ 533 Chart 1. Monthly Demands for Imported and Ground Water Supplies in West Basin during 1962-63 .......................................... 534 2. Monthly Demands for Ground Water: Shell Oil, Standard Oil and Johns-Manville (1962-63) ......................................... 536 3. Monthly Demands for Ground Water: Southern California Water Company, Dominguez Water Company, California Water Service, Palos Verdes Water Company (1962-63) ..................... 537 4. Monthly Demands for Ground Water: Cities of Inglewood, Los Angeles and Manhattan Beach (1962-63) .......................................... 538 5. Monthly Demands for Imported and Ground Water Supplies in Central Basin during 1962-63 ............................................ 542 6. Total Monthly Demands for Water in West Basin (1962-63) .................................... 558 7. Total Monthly Demands for Water in Central Basin (1962-63) .................................... 559 xiv PREFACE Any study of public entrepreneurship inevitably re- quires that large demands must be made upon many persons who occupy different positions in public life in order to secure the essential information and data. Without their ready cooperation a study of this type could never have been com- pleted. Many individuals gave generously of their time and provided valuable insight into the problems faced by public entrepreneurs in West Basin. Many persons went far beyond what one might reasonably expect in making information available. I am especially indebted to Carl Fossette, John Johams and Florence Langford of the West Basin Water Association for their kindness in providing information and for their willingness to read and comment upon major seg- ments of the manuscript at various stages of development. Robert Chun, Carlos Madrid and their associates at the California Department of Water Resources, and Howard Haile and his associates at the Los Angeles County Flood Control District, also spent many hours answering detailed tech- nical questions and educating a political scientist con- cerning some of the physical problems associated with the attempt to regulate a ground water basin. F. R. Bowerman of the Los Angeles County Sanitation Districts, Warren xv Butler or the Metropolitan Water District of Southern Cali- fornia, Rex Goodcell of the Los Angeles Department of Water and Power and Brennan Thomas of the Long Beach Water De- partment provided important insights into the activities of their own agencies, as well as giving me the benefit of their observations of the events in West Basin from the perspective of interested and active participants. The consulting engineer, Max Bookman, and the attorney-at-law, Donald Stark, spent many valuable hours discussing some of the physical, political and legal problems of ground water basin management in Southern California. Louis Alexander, W. C. Farquhar and Charles Barker were extremely generous in their discussions of the problems of private water pro- ducers, as well as describing some of their own activities as public entrepreneurs. Beyond those who were professors in my major depart- ment, I am especially indebted to Professor Jack Hirsh- eifer and Professor Warren Hall for the comments and sug- gestions that they have made in the course of the prepara- tion of this manuscript. To these and the many others mo gave extensive information and assistance to this study, I wish to express my deepest gratitude and appre- ciation. xvi ABSTRACT OF THE DISSERTATION Public Entrepreneurship: A Case Study in Ground Water Basin Management by Elinor Ostrom Doctor of Philosophy in Political Science University of California, Los Angeles, 1965 Professor Dwaine Marvick, Chairman The traditional literature of political science and 6conomics has given little consideration to the strategy used by individuals in organizing public enterprises to provide public goods and services. Economists have long been concerned with entrepreneurship, but have largely confined their analysis of entrepreneurship to the private market economy. Political scientists most often take a Governmental agency as given and rarely investigate the problems of undertaking new public enterprises. The per- spective of public entrepreneurship was taken in this study in order to better understand the process of launch- ing new public enterprises and of devising a public enter- prise system to undertake a ground water basin management program. The study was based primarily upon the use of documentary materials. xvii Increasing salt water intrusion in a ground water basin was the stimulus which evoked the efforts of entrepreneurs seek public solutions to their common problem. The physical and institutional conditions confronting water Producers in the West Coastal Basin of Southern California as they began to organize for public action in 1945 is described in an introductory section. Next, the strategies of those who functioned as public entrepreneurs are examined in a case study which involves (1) the organization of a water producers' and users' association to function as a forum for the consideration of common problems, (2) the creation of a municipal water district to provide a supple- mental surface supply, (3) the use of litigation to achieve a limited pro-rata rationing of the local ground water resources, (4) the development of institutional arrangements to test the effectiveness of a fresh-water barrier against the sea and to place a prototype barrier into operation along a one-mile section of the exposed coastline, (5) the design and creation of a water replenishment district as a ground water basin management enterprise and (6) the development of a management plan involving the coordinated action of several public water agencies to assure the con- tinued use of ground water supplies in conjunction with imported surface supplies. Finally, the performance of this public enterprise system was evaluated in relation to its capacity (l) to xviii realize its physical objectives, (2) to secure operational agreements with other agencies and (3) to develop an optimal program in terms of economic efficiency. Physical objec- tives and operating agreements have been attained but a non- optimum program has been developed. The institutional ar- rangements implicit in the structure of this ground water basin management system have not motivated ground water producers to take full account of the social costs of their actions. By developing a more economic source of water supply than the alternative sources now being developed by state agencies this local ground water basin management program will, to that extent, be an important long-term force contributing to the more efficient use of water resources in Southern California. SECTION I INTRODUCTION 1 2 CHAPTER I PUBLIC ENTREPRENEURSHIP AND THE WEST BASIN EXPERIEICE Public Entrepreneurship as a Focus of Inquiry Entrepreneurs perform essential functions in organizing and guiding enterprises to provide the goods and services which are demanded as a condition of life in contemporary society. One of the principal attributes of American society is its emphasis upon the freedom and initiative which entrepreneurs can exercise in organizing new under- takings to meet changing demands for goods and services. The freedom and initiative which entrepreneurs can exercise have led to the characterization of the American economy as a free enterprise economy and of American society as an open society. The function performed by private entrepreneurs has received considerable attention by economic theorists. Frank Knight, for example, stressed the role of the entre- preneur in bearing the risks faced by an enterprise in a changing environment.1 In Knight's theory, profits were 1 See Frank H. Knight, Risk, Uncertainty and Profit (Boston: Houghton Mifflin Company, 1921). 3 the residual income that entrepreneurs earned for perform- ing the risk bearing function for an enterprise. Joseph Schumpeter, on the other hand, considered innovation as the major function of the entrepreneur and profits as the proper return to the entrepreneur for performing the in- novative function.2 The classical concept of the entre- preneur as the organizer and manager of a going concern has also been retained in modern discussions of private entre- preneurship.3 The concept of entrepreneurship will be used in this study as implying a combination of all three functions. Entrepreneurship is an essential function at the time that a new organization is being formed. Someone has to envision the possibilities of joint action and bring together the necessary factors of production into one unit. Entrepre- preneurship is also an essential function performed in the going concern operating in a changing environment. Someone must choose which of the available alternatives have the possibility of yielding the best payoff and be prepared to assume responsibility for the consequences of those choices. 2 See Joseph A. Schumpeter, The Theory of Economic Development, translated by Redvers Ople (Cambridge, Mass.: Harvard University Press, 1936). 3 See Frederick Harbison, "Entrepreneurial Organization as a Factor in Economic Development,: The Quarterly Journal of Economics, LXX (August, 1956 ), 364-66, and Edith Tilton Penrose, The Theory of the Growth of the Firm (New York: John Wiley & Sons, Inc., 1959). 4 Innovation also continues in the going concern as decisions are made about new products, new plant locations and new production processes. The economic study of entrepreneurship has involved the study of men organizing enterprises to produce and sell private goods within the context of the private market- place. However, many of the goods desired in any society are not amenable to private provision. Some goods cannot be excluded from those who do not pay for their use. Other goods have such a range of joint and alternative uses that the priority of claims for a discriminate use or user can- not be determined through the functioning of a normal mar- ket. When the goods desired by individuals are not exclu- sive, determinate and easily transferable, individuals have problems in their attempt to achieve a satisfactory manner of allocating scarce resources to their most valuable use. Frequently, individuals invoke public authority in their attempt to provide goods which are not readily exchanged in a market. They may seek to establish new laws which trans- form the basic operation of the market or to create public enterprises to provide these goods. Because of the neces- sity of reliance upon public provision or extensive public regulation, goods which are not exclusive, determinate and easily transferable can be considered to be public goods. The existence of entrepreneurship in the private sector raises the question of whether there is a comparable 5 function performed by those who undertake to provide public goods and services in the public sector, which might appro- priately be characterized as public entrepreneurship. Con- cepts of home-rule, local self-government, and local autonomy in the conduct of local governmental affairs re- flect some of the same elements of freedom and openness which provide the essential conditions for the exercise of an entrepreneurship in the public sector. In addition, the vast variety of organizational forms among municipal and public corporations would appear to provide substantial latitudes for the exercise of a public entrepreneurship. In such an institutional setting there should be opportuni- ties for persons to engage in public entrepreneurship by organizing new enterprise to secure appropriate forms of community action in providing common goods and services. The conduct of public entrepreneurs, one might antici- pate, is similar to but not identical to the conduct of private entrepreneurs. The working rules governing the be- havior of private entrepreneurs allows a greater freedom of action. Private entrepreneurs decide when and if they want to enter into competition with other entrepreneurs; and, as long as they pursue legal strategies, how they want to compete. Private entrepreneurs operating in a competitive market are free to pursue their own self interest. This self interest is frequently related to the interest of a firm since the primary focus of competition in the modern 6 corporate economy is among firms rather than among specific individuals. By vigorously pursuing his own self interest within the structure of an effective market, the private entrepreneur produces goods and services which are desired by a commun- ity. The market represents an institutional structure of incentives and deterrents to enable individuals to pursue their own opportunities and at the same time, to perform socially valuable functions. The capacity to engage in public entrepreneurship is defined by a political system. Constitutional ground rules which stress the right of local communities to self- determination lay a framework for an extensive and varied public enterprise system. Legislative enactments which specify the general rules of procedure for incorporation of municipalities or public districts or other public corpora- tions provide the working rules which public entrepreneurs must follow in proceeding to undertake a new enterprise. These same general laws also specify the working rules that public entrepreneurs must follow in the pursuit of oppor- tunities in the public sector. The possibility of new legislation creating facilities for the establishment of new districts or expanding the capabilities of existing enterprises always exists in a political system devoted fundamentally to the coexistence of an active public enterprise system together with a vigorous private enter- prise system. 7 Public entrepreneurs can exercise fundamentally differ- ent powers to develop, control and allocate resources than private entrepreneurs. Public entrepreneurs have access to the use of such powers as eminent domain and taxation which extend the range of activities in which they can engage. However, holders of entrepreneurial positions within exist- ing public enterprises are limited to the pursuit of spe- cific opportunities utilizing only those powers assigned to them by legislation as interpreted by the courts. While the private entrepreneur may pursue any legal activity by any legal means, the public entrepreneur is constrained by the organic legislation which created or authorized the creation of his district. The purposes of the enterprise are designated and cannot be changed without a change in the relevant legislation. And equally important, the techniques which may be used in the attempt to fulfill the purposes of the public enterprise are also specified. While the powers or capabilities he wields may be great in scope and extent, his capacity to introduce new measures for dealing with new problems on his own initiative and author- ity is usually much more limited than that of the private entrepreneur. Public entrepreneurs, as a result, are much more intimately involved in the political process generally in order to be able to authorize and to validate new pro- grams of action and new institutional arrangements for accomplishing their purposes. 8 The motivation of the public entrepreneur is somewhat more complex than that of the private entrepreneur since the working rules affecting the behavior of public and private entrepreneurs differ significantly. The working rules affecting the behavior of public entrepreneurs restrict their capacities to seek personal gain. An entre- preneur usually cannot create a public enterprise for the sole purpose of seeking opportunities for his own gain. He must seek authorization either by action of a legislative body or by an affirmative vote of the people included within the boundaries of the district, that the public requires the organization of a new public enterprise. The public entrepreneur who then becomes a public official is held accountable for continuing to serve these public interests. Public officials, who seek to gain private benefits at the expense of their public, are subject to special remedies and sanctions. Members of the public can bring charges and invoke other officials to apply sanctions to an errant holder of a public trust. By using the orientation of public entrepreneurship to pursue a case study of water resource development and ground water basin management, emphasis is given to the strategies which people followed in seeking to solve a com- mon problem through public actions which could not be solved by individual private actions. The focus is upon the multiple strategies followed rather than the operation 9 of any particular agencies or set of agencies. A study in public entrepreneurship provides an opportunity to develop a natural history of the evolution of a program in public administration where all of the different components can be viewed as being fit together as essential elements in a total program. The balance of this introductory chapter will provide a general overview of the West Basin experience in public entrepreneurship. First, the ground water "problem" of West Basin will be considered. Second, the structure of the West Basin water industry as it existed in 1945 will be described. Third, the course of public entrepreneurship between 1945 and 1963 will be summarized. Fourth, the resulting structure of the water industry in 1963 will be outlined with explicit reference to the creation of a super- structure composed of numerous public agencies responsible for the joint management of a conjunctive use system. The more detailed analysis will be contained in the chapters following this preliminary overview. The Ground Water "Problem" of West Basin West Basin is the name of a ground water basin which is the last of three interconnected ground water basins underlying the south coastal plain upon which the Los Angeles metropolitan complex has developed. The original source of the water flowing into West Basin is precipitation 10 falling on the foothills surrounding and valley floor of the San Gabriel Valley. The Rio Hondo and San Gabriel Rivers drain the San Gabriel Valley, and a large proportion of the flow sinks below the surface to move slowly downward through the subsoil toward the sea. In the San Gabriel Valley, the communities of Alhambra, El Monte, Monrovia, Baldwin Park, West Covina, Duarte, Azusa and Glendore utilize the water of the Rio Hondo and San Gabriel Rivers and their tributaries, as well as withdrawing considerable quantities of ground water from the valley fill. Central Basin also receives its supply of fresh water from the San Gabriel Valley, where surface and subsurface water flows through the Whittier Narrows. The communities of Huntington Park, Whittier, Vernon, Bell, Norwalk, Monte- bello, Downey, South Gate, Paramount, Lakewood, Compton, Bellflower and parts of Inglewood, Los Angeles, Signal Hill and Long Beach have utilized the water flowing into Central Basin. In most cases, this is their primary source of water supply.4 4 Historically, West Basin was related to the Los An- geles River and the San Fernando Valley, as well as the Rio Hondo and San Gabriel Rivers flowing through the San Gabriel Valley. However, the City of Los Angeles, through its pueblo right claims all the water flowing in the Los Angeles River and has diverted most of the water flowing out of the San Fernando Valley into its water supply system. The official name of West Basin is West Coast Basin. However, since the basin is most frequently referred to by the shorter name, I have used the shorter term throughout this dissertation. 11 A fault zone separates West Basin from Central Basin and partially interrupts the free flow of water between these two basins. However, historically between 10,000 acre-feet and 30,000 acre-feet of water per year have flowed from Central Basin into West Basin. The cities of El Segundo, Manhattan Beach, Redondo Beach, Hermosa Beach, Palos Verdes Estates, Gardena, and Hawthorne, as well as portions of the cities of Los Angeles, Inglewood, Torrance, Signal Hill and Long Beach are included within the surface boundaries of West Basin. The Pacific Ocean functions as the western and southern boundary of West Basin. The development of water resources in this area has been the result of both private and public entrepreneur- ship. The first exploitation of ground water resources in West Basin occurred during the 1880's when hundreds of small farmers pumped water for agricultural purposes. The use of local ground water by individual proprietors as a factor of production for another product has continued up through modern times. In addition to agricultural pro- ducts, ground water has been used as a factor of production by numerous large oil producers and other industrial con- cerns. The capture of ground water for use by private concerns who produce non-water services has remained con- sistently within the structure of the private economy. As soon as a series of resort towns was established along the ocean front prior to the turn of the century, 12 enterprises were developed to provide water as a service to others. The production of water for sale to other enterprises involves the construction of extensive works and requires the capacity to gain rights of way across private land. While water can be packaged for sale to those who pay for its use, private entrepreneurs function- ing within the normal working rules for private individuals do not have sufficient powers to build an appropriate sys- tem. And, once such a system is constructed, individual purchasers on the other side of the market face a natural monopolist who could exert considerable power over the market to be able to set his own bargain. For both of these rea- sons--the need for extraordinary power to constitute the enterprise and the need for special precautions to pre- elude the unfair exercise of this power--the organization of water supply agencies has either been extensively regulated by public agencies or public agencies have pro- duced this water and provided it to the citizens within their jurisdictions. By the 1930's, the total annual production by all water producers located in West Basin regularly began to exceed the annual supply of fresh water to the basin.5 Water 5 The annual supply of fresh water to West Basin varies greatly depending upon the relative levels of demand made in West Basin, Central Basin and the San Gabriel Valley. The early development of ground water supplies in West Basin increased the annual supply as more water flowed in from Central Basin. The annual supply in the 1910's was around 10,000 acre-feet. This was increased to over 20,000 13 levels throughout the basin began to fall and, thus, in- creased the costs of production for all water producers. As water levels along the coast fell below sea level, salt water entered the basin in some areas underlying the coastal communities. The economy of the area continued to expand, especially during World War II, with the result that still larger quantities of water were withdrawn each year. As water levels fell further, salt water entered all along the coast and began to move inland, threatening the rest of the basin. Ground water production increased from over 52,000 acre-feet in 1941 to over 75,000 acre-feet in 1945; during the same period salt water intrusion also increased from close to 30,000 acre-feet to almost 47,000 acre-feet per year. From 1932 to 1945, a total of 400,000 acre-feet of salt water entered West Basin to replace an equivalent amount of fresh water withdrawn through the years in excess of the annual supply to the basin.6 The degree of salt water intrusion was dramatically demonstrated in the mid- 1940's as grass in school and park lawns died as a result acre-feet during the 1930's and close to 30,000 acre-feet during the later 1940's. While the supply of fresh water was increased by heavy pumping, the basin was in an over- draft condition since the actual withdrawal of fresh water exceeded the replenishment. 6California, Department of Public Works, Report of the Referee in California Water Service Company v. City of Compton, case No. 50636 in the Superior Court of the State of California in and for the County of Los Angeles, p. 98. Hereinafter referred to as Ref. Rpt. I. 14 of irrigation by ground water high in chloride content. Persistent salt water intrusion posed a serious threat to continued use of West Basin in a water supply system. Unfortunately, during the early 1940's, West Basin water producers did not, and could not know the total volume of annual withdrawals from the basin or the extent of natural replenishment. Most water producers were aware that total demand for ground water was far greater than the natural supply. They had evidence of overdraft condi- tions in their own well records which showed continuously falling water levels, but total demand and supply figures were only available in the 1950's after extensive investi- gation by a court appointed referee. Individuals who had access to limited information about overdraft conditions in the early 1940's held posi- tions of responsibility in different independent water supply agencies. Individuals in one agency viewed indi- viduals in other agencies as competitors, and considered minimization of information about the growing evidence of a water supply shortage as the appropriate strategy for dealing with competitors. As long as the individual firm was considered to be the appropriate unit for solving Water supply problems, communication among firms was held to a minimum. Water producers engaged in a quiet, competi- tive race with each other to establish and perfect their individually most advantageous legal claims to water rights 15 in case someone challenged their right to continue produc- tion at expanded rates of withdrawal. Individuals who considered the single firm no longer an appropriate unit for dealing with water supply problems in the basin had considerable difficulty in discussing mutual problems with other water producers. Acknowledgment by all water producers that a common problem existed, and the es- tablishment of effective channels of communication between water producers were needed before the diseconomies of this competitive situation could be avoided. If West Basin water producers continued their competi- tive actions, salt water would eventually degrade fresh water supplies throughout the basin. A ground water basin intruded with salt water is of little, if any, value for use in a water supply system. Properly managed, West Basin had the potentiality of providing a small but regular supply of relatively inexpensive and high quality water, as well as functioning as a storage reservoir an d a partial dis- tribution system.7 If the problems of how to utilize the basin in some optimal manner could be solved, West Basin is 7Demands for water follow an uneven oscillating pat- tern over hourly, daily, seasonal and cyclical periods. The water demands at the peak hour of the peak day of the peak season may be as much as ten to twenty times greater than the average annual rate of use. Any water system designed to provide water to a variety of customers free to make demands for water whenever they desire, must pro- vide regulation between demand and supply in some manner. Construction of surface reservoirs is one method of intro- ducing regulation into a water supply system. Ground water basins can also provide this function for water suppliers 16 a natural resource of considerable value. Estimates of the capital cost of replacing the water storage capacities of the basin by surface reservoirs have ranged from $90,000,000 to $150,000,000.8 The annual wholesale value of the water supply derived from the basin is currently worth about $1,200,000.9 The first steps in reaching public solutions to the common ground water management problems in West Basin were initiated in 1945 with the formation of the West Basin Water Association. The course of public entrepreneurship which followed was built upon the foundation of the West Basin water industry as it existed in 1945. In order to understand the structural foundations with which the public who utilize them in such a manner as to take advantage of their regulatory capacities. Since water is available wher- ever a well can be drilled, ground water basins can also save some water users the cost of building a distribution system to transport water from its source to its place of use. 8Los Angeles County Flood Control District, Report on Required Facilities for Replenishing and Protecting Ground Water Reserves in the Central and West Coast Ground Water Basins (Los Angeles, '1961), p. 9;, and statement by Carl Fossette printed in the Daily Breeze, January 15, 1954. 9At the present time Colorado River water is the next alternative source and water supply agencies pay $30.00 per acre-foot of softened water. Pumping currently costs about $10.00 per acre-foot in West Basin. Ground water production is about 60,000 acre-feet per year. Total cost of pumping 60,000ooo acre-feet is $600,000 as compared with $1,800,000 as total cost of purchasing the same quantity of Colorado River water. Future sources of alternative supplies will cost far more than Colorado River water, and thus the relative value of ground water will increase even though water producers may not be able to continue to withdraw as much as 60,000 acre-feet per year. 17 entrepreneurs had to work in fashioning public solutions to their water problems, the structure of the West Basin water industry as it existed in 1945 will be briefly ex- amined in the following section. The Structure of the West Basin Water Industry--1945 The structure of the water industry in West Basin in 1945 was relatively simple even though the number of enter- prises involved was large. Most agencies produced ground water for their own use or for sale to other enterprises. One water wholesaler existed which sold limited quantities of surface supplies to three cities located in the basin. Two agencies existed which were concerned with ground water basin replenishment, but their activity only indirectly affected water supply conditions in West Basin. Water Producers Enterprises Producing Water for Their Own Use Ten oil companies.--The oil companies were relative newcomers, most of them moving to West Basin during the 1930's, but by 1945, the ten firms as a group produced about 27,250 acre-feet of water, which was approximately 36 per cent of the total basin production for the year.10 10Unless otherwise noted the statistics cited in this section on the structure of the water industry in 1945 can be verified by reference to Ref. Rpt. I, pp. 67-78 or to 18 Individual oil companies produced from 100 acre-feet to over 6,000 acre-feet during the year. Richfield Oil Cor- poration, Shell Oil Company, Standard Oil Company and the Texas Company each produced more than 4,000 acre-feet per year. Even though their water production from the basin was expanding annually, many of these firms had established water conservation programs within their refineries, includ- ing facilities for recirculation of fresh water. At Standard Oil and Richfield Oil, in particular, efforts were made to recirculate fresh water wherever practical. It is inter- esting to note that one of the larger water companies of- fered to provide water service to Richfield Oil at a price which would have been less than the cost of recirculation. Richfield refused to purchase additional water since the supply would still have been withdrawn from the basin.11 Standard Oil also utilized a large quantity of ocean water in addition to the fresh ground water produced by their wells.12 Ways and Means Committee of the West Basin Ground Water Conservation Group, Report(Manhattan Beach, 1945), p. 6. 11Interview with W. C. Farquhar, February 3, 1961. 12By 1949, the El Segundo Refinery of Standard Oil was using 100 cubic feet per second of sea water for cooling and washing processes where high quality water was not required. is amounted to about 72,000 acre-feet per year. Ref. R I, p. 110. 19 Twenty industrial producers.--Individual industrial firms produced from less than one acre-foot in 1945, to more than 1,800 acre-feet. The largest industrial producer was Columbia Steel Company, with General Chemical Company and Johns-Manville Products Corporation following in second and third place. These twenty companies produced a total of approximately 5,500 acre-feet which was 7 per cent of the total production from the basin. The Redondo and Long Beach steam plants of the Southern California Edison Com- parn used large volumes of sea water for cooling purposes in addition to relatively small quantities of fresh water utilized for special processes.13 Two hundred and fifty nonindustrial users.--Ground water production by nonindustrial users varied from less than one acre-foot to over 400 acre-feet during 1945. Dominez Estate Company was the largest water producer in this group with the Hollywood Turf Club in second place. Several land development companies, cemeteries, parks, golf courses and schools were among other users in this group. Farmers who used water to irrigate land to grow vegetables for sale in the metropolitan Los Angeles market constituted by far the largest number of users within the 13By 1949, Southern California Edison was using sea water equivalent to a continuous flow of 400 cubic feet per second at Redondo for condensers and 1,000 cubic feet per second at Long Beach. This is equivalent to 218,000 and 730,000 acre-feet per year respectively. Ref. Rpt. I, p. 110. 20 non-industrial group. In 1945, the nonindustrial users produced approximately 8,000 acre-feet, which was about 10 per cent of the total production from the basin. Many of the nonindustrial water producers were com- pletely dependent upon their own wells for a supply of water since over 12,000 acres of land on the coastal plain within West Basin, and close to 8,000 acres of land in Palos Verdes Hills, were not served by any public or private water company. Some of these water producers, who owned land in both West and Central Basin, produced water in Central Basin for use in both basins. Approximately 1,150 acre- feet of ground water produced in Central Basin was imported into West Basin by water users in this group. Enterprises Producing Water for Sale Seven cities.--The cities of El Segundo, Manhattan Beach, Hawthorne, Torrance, Inglewood, Las Angeles and Lang Beach organized water departments or water districts to sell water to individuals and firms located within their boundaries.14 El Segundo, Manhattan Beach and Hawthorne supplied their residents with West Basin ground water only. 14A large portion of the City of Torrance was served by two Municipal Water Districts and one Municipal Improve- ment District; however, the rest of the city was served by a County Waterworks District and several private water com- panies. In 1945, many residents complained about water service and requested the City Council to expand the service areas of the Municipal Water Districts. For a dis- cussion of water problems in Torrance in 1945, see the Torrance Herald, July 19, 1945. 21 The City of Inglewood produced ground water in both Central and West Basins, and prior to 1943 imported water from Central Basin into West Basin. Long Beach produced most of its ground water in Central Basin for importation into West Basin. Los Angeles imported water from the Owens Valley for use by its residents in West Basin. The cities of Los Angeles, Long Beach and Torrance were members of the Metropolitan Water District of Southern California and provided their residents with imported Colorado River water, as well as ground water supplies. As shown on Table I, during 1945, these seven cities produced a total of about 12,000 acre-feet of ground water from West Basin, which was approximately 16 per cent of the total production from the basin. During the same Table I Source and Quantity of Water Supplied by Municipalities (in acre-feet) Amount Supplied______ Municipality Ground Imported Total Water Water Water Supplied El Segundo 1,120 -- 1,120 Hawthorne 1,906 -- 1,906 Inglewood 3,704 -- 3,704 Long Beach 1 21,454 21,455 Los Angeles 1,503 27,331 28,834 Manhattan Beach 1,114 -- 1,114 Torrance 2,519 36 2,555 Total 11,857 48,831 63,685 22 period, the cities of Los Angeles, Long Beach and Torrance imported a total of nearly 49,000 acre-feet from Central Basin, Owens Valley and Colorado River sources for use in West Basin. Two county waterworks districts.--County Waterworks District Number 22 operated a municipal water system serving an unincorporated area located between Hawthorne and El Segundo known as 'Liberty Acres." County Waterworks Dis- trict Number 13 operated a municipal water system serving an unincorporated area near Torrance known as "Lomita" and a portion of the City of Torrance. In 1945, these two districts produced a total of slightly over 1,O00 acre-feet of ground water, which was about 1 per cent of the total production from the basin. Twenty-one private water companies.--Five of these companies provided water to relatively large service areas. Dominguez Water Company had the largest service area in the basin, serving 13,379 acres of land west of Torrance and north of Wilmington, as well as portions of the City of Torrance. California Water Service provided water to the cities of Hermosa Beach and Redondo Beach any surrounding land; Palos Verdes Water Company served parts of the Palos Verdes peninsula; Southern California Water Company served Gardena, Lawndale and surrounding sectors; and the Noneta Mutual Water Company served portions of Torrance and unin- corporated land around Torrance. All of these larger 23 water companies sold only West Basin ground water to resi- dents within their service areas. The ground water produc- tion of these five companies in 1945 was: Acre-feet Dominguez Water Comparny 10,466 Southern California Water Company 4,238 California Water Service 2,777 Moneta Mutual Water Company 1,273 Palos Verdes Water Company 814 The remaining sixteen water companies served areas which varied from ten acres to over 1,200 acres. The ground water production of these smaller private water com- panies varied from eight acre-feet to approximately 500 acre-feet in 1945. Several of the small private water com- panies serving the Gardena area produced ground water in Central Basin and imported it for use of residents in their West Basin service areas. The total ground water production from West Basin of the twenty-one private water companies was estimated to be 21,750 acre-feet, which was approximately 30 per cent of the total production from the basin for that year. Water Wholesalers Metropolitan Water District of Southern California In 1928, Los Angeles and eight surrounding cities joined together to develop water rights to Colorado River 24 water, to transport Colorado River water to Southern Cali- fornia and to sell and deliver this supplementary supply at wholesale to water users located within their boundaries by forming the Metropolitan Water District of Southern Cali- fornia. In 1931, the cities of Long Beach and Torrance voted to annex their territory to Metropolitan. During 1933, Metropolitan began construction of a 242-mile aque- duct to bring water from the Colorado River to its terminal reservoir at Lake Mathews. The first water deliveries were made in 1941. While Los Angeles, Long Beach and Torrance were the ony West Basin cities belonging to Metropolitan in 1945, Metropolitan had considerable interest in West Basin. The West Basin cities that had refused to join Metropolitan during the 1930's argued that they were not in need of a supplemental supply and that membership in Metropolitan was too costly. Land owners resident in member cities paid a substantial ad valorem tax to Metropolitan for the privilege of using Colorado River water, as well as paying higher water rates reflecting the high cost per acre-foot of trans- porting water from the Colorado River. The original inten- tion of the founding members of Metropolitan was to con- struct an aqueduct large enough to supply most of Southern California with a surface supply of water. The Colorado River aqueduct was a costly venture. Sales of water were far below their expected level and water revenues fell below 25 capital and operating costs. Metropolitan needed to extend its boundaries so that other communities, like those in the West Basin area, would help bear the cost of building, main- taining and operating the Colorado River aqueduct through the payment of taxes. Metropolitan had a second reason for its desire to expand. The District had established a pre- liminary claim to 1,212,000 acre-feet per year of water from the Colorado River. To perfect its claim, Metropolitan needed to establish a long history of use of its full claim.15 However, in 1945, Metropolitan sold only a little in excess of 32,000 acre-feet, less than 3 per cent of its total claim.16 For these two reasons, the Board of Directors of Metropolitan had frequently suggested that the entire West Basin area should be included within Metro- politan. Other Water Service Agencies Los Angeles County Flood Control District The Los Angeles County Flood Control District was established by special legislation in 1915, to provide protection and water conservation to most of Los Angeles 15See Vincent Ostrom, Water and Politics: A Study of Water Policies and Administration in the Development of Los Angeles (Los Angeles: The Haynes Foundation, 1953), pp. 182-83 16Metropolitan Water District of Southern California, Annual Report 1951-1952 (Los Angeles, 1952), p. 50. Here- inafter cited as MWD, Annual Report (year). 26 County except Lancaster and Mojave Desert areas. During the first two decades of its existence, the Flood Control District was primarily concerned with the prevention of damage to property caused when the rivers and streams cross- ing Los Angeles County overflowed their banks and spread out over broad areas. Actions undertaken by the Flood Control District out- side the boundaries of West Basin had indirect consequences on the water supply of the basin. As a part of its flood control program, the District straightened the Los Angeles, San Gabriel and Rio Hondo Rivers and lined large segments of their channels with impervious concrete. In order to offset the reduction in natural percolation caused by lin- ing these channels, the Flood Control District began in the 1930's to construct spreading grounds adjacent to these rivers. The Flood Control District operated two spreading works on the San Gabriel and Rio Hondo Rivers which con- nected with the aquifers underlying West Basin. From 1937, when the District began to spread flood water, through 1945, a total of approximately 25,000 acre-feet of water were spread at these two locations.17 No estimate has been made of the net loss to West Basin resulting from the 17California, Department of Water Resources, Report on Proposed Central and West Basin Water Replenishment Dis- trict (Sacramento: State Printing Office, 1959), p. 51. Hereinafter cited as Dept. of Water Resources, Proposed Replenishment District. 27 reduction of natural inflow to the aquifers of the basin from the Los Angeles, Rio Hondo and San Gabriel Rivers. Since 1930, the Flood Control District has maintained an active water quality program throughout its territory. This program involved sampling and analyzing the water from forty shallow wells in the San Gabriel Valley and fourteen shallow wells in Central and West Basin. In the early 1940's, the Flood Control District became aware of the increased chloride content of wells located in Manhattan Beach. The Chief Engineer of the Flood Control District wrote several letters to West Basin producers calling their attention to the possibility of dangerous salt water intrusion. However, the Flood Control District could only investigate and report and could not initiate a program to prevent salt water intrusion. California Division of Water Resources The Division of Water Resources of the California Department of Public Works performed an investigational role in gathering and analyzing data for the legislature concerning such matters as water supply in relation to future water requirements, geology and hydrology of ground water basins and water quality problems. In 1930, the Division initiated a study of water problems in the South Coastal Basin including West and Central Basins and the San Gabriel Valley. In 1934, the Division published a bulletin describing the geology and ground rwater storage 28 capacity of all basins comprising the South Coastal Basin. At this time, the Division pointed out the possibility of salt water intrusion into West Basin, but also inferred that an impervious clay cap protected the basin to some degree.18 In 1944, the Division issued a short report on West Basin which dramatically illustrated falling water levels and salt water intrusion in West Basin.19 However, the Division lacked power to intervene in any manner to prevent further damage to the basin and could only report its findings. The Water Industry and the Basin in 1945 The West Basin water industry in 1945 was primarily concerned with the production and distribution of local ground water for immediate consumption. More than half of the ground water produced in the basin was pumped by enter- prises for their own use. The largest single class of users was the petroleum industry. As shown on Table II, the basin provided 60 per cent of the total water demanded 18California, Department of Public Works, Geology and Ground Water Storage Capacity of Valley Fill, Bulletin No. 45, South Coastal Basin Investigation (Sacramento: State Printing Office, 1934), p. 203. Hereinafter referred to as Dept. of Public Works, Bulletin No. 45. 19California, Department of Public Works, Division of Water Resources, Underground Water Conditions in West Coast Basin, Southern California (Sacramento: State Printing Office, 1944). 29 Table II Total Water Supply of West Basin Enterprises, 1944-1945 (in acre-feet) Type of Enterprise Total Water Ground Imported Supplied Water Water Supplied for Own Use: Petroleum 27,250 27,250 -- Industrial 5,500 5,500 -- Nonindustrial 9,150 8,000 1,150 Supplied for Sale: Cities 61,000 12,000 49,000 County Water Districts 1,000 1,000 -- Private Water Companies 22,250 21,750 500 Total 126,150 75,500 50,650 during the year. Even more significant is the fact that the basin provided all of the water demanded by the major- ity of water producers in the basin. Most of the demands met by the use of an imported water supply were concentrated in two cities--Los Angeles and Long Beach. The City of Torrance was beginning to use some Colorado River water and would increase its importations greatly in the years to come. Some small private utilities and a few individual farmers, investment companies and a cemetery imported water from wells located in Central Basin, but West Basin was the only source of supply for the rest of the water producers. 30 Continued use of West Basin as the main source of supply threatened to destroy the potential capability of the basin to function in conjunction with a surface supply. If West Basin water producers continued to mine the basin, they would gain high short-run pay-offs. However, the possibility of a greater long-run pay-off existed if sup- plementary supplies were developed to satisfy growing base demands for water, and production from West Basin was re- duced to an amount that would not destroy its future use for local peaking purposes. The Course of Public Entrepreneurshp--1945-1963 Formation of the West Basin Water Association In 1945, a group of water producers took a crucial step towards converting the competitive race among the large number of poorly informed and, in some cases, decep- tively competitive water producers into some form of co- operative enterprise which could develop and utilize the basin for their joint benefit. The first step was the creation of the West Basin Water Association, a permanent association of all the major water producers extracting water from West Basin. The creation of the association was an acknowledgment on the part of all those who joined that a deficiency in ground water supplies existed which could adversely affect every West Basin pumper. The 31 association provided the forum in which water producers could discuss their mutual problems, expand their level of knowledge about alternate supplies, and investigate a variety of methods for solving their problems through various forms of cooperative enterprise. The association from its very beginning was committed to a strategy of cooperation with all existing water agencies. The structure of the water industry as it existed in 1945 was accepted as the beginning point for the crea- tion of additional institutional arrangements to prevent the adverse consequences of uncontrolled competition and to provide joint benefits for all of the producers utiliz- ing the basin. This also meant that the West Basin Water Association was committed to a policy that every water producer should be able to gain a continuing benefit from the basin. The Provision of an Alternate Supply Many members of the association considered access to a supplemental source of water an important first step toward halting salt water intrusion. Water producers would not reduce withdrawals from the basin until they could use an alternate supply to fulfill their own needs or those within their service area. Several sources of additional water were potentially available, but membership in the 32 Metropolitan Water District with access to Colorado River water appeared to be the most feasible from technical, legal and economic considerations. Theoretically, each city in West Basin was eligible to annex to Metropolitan inde- pendently, but this was an unsatisfactory solution for both the association and Metropolitan. Creation of a Municipal Water District was a means of including the entire basin within one public entity that could annex to Metropolitan. However, many inland communities opposed the move to create a new district. Political leaders in these inland areas argued that they were not facing a water shortage and should not be forced to pay high property taxes to enable the beach communities to gain a supplemental supply of water. After an unsuccessful attempt to create a district encompassing the entire basin, the areas most severely af- fected by salt water intrusion settled for a smaller district which was voted into existence on November 25, 1947. The conflict between the beach communities and the inland areas was resolved within a few years, when the inland communities recognized that they shared a common problem with the rest of the basin. These areas all asked to annex to the West Basin Municipal Water District within two years. The first deliveries of Colorado River water to West Basin were made in 1949. 33 The Rationing of West Basin Water Supplies A second modification of the structure of the West Basin water industry was initiated in 1945, but not com- pleted until 1961. This was an effort to use litigation to curtail total production and to apportion the reduced ground water supply among water producers who had historic claims to use this supply. In October, 1945, two private water companies and a city filed a suit in Superior Court against a long list of known water producers in West Basin.20 In 1946, the Court referred the case to the Department of Public Works to serve as Referee in determining the physical facts involved. The Referee's report, filed in 1952, provided the technical information necessary before any agreement could be reached. The Referee also recommended that production from the basin be curtailed to a "safe yield" of 30,000 acre-feet per year. By 1952, total ground water production had reached 90,000 acre-feet, so this represented a pro- posed reduction of two-thirds. Most large water producers opposed the proposal. As a result, the association estab- lished a legal settlement committee to negotiate a physical settlement that would be agreeable to major water producers. After three years of intensive negotiation, forty-six 20California Water Service Company v. City of Compton, Case No. 500606 in the Superior Court of the State of Cali- fornia in and for the county of Los Angeles. 34 producers responsible for over 75 per cent of the total ground water production from the basin entered into a voluntary interim agreement to reduce their production by 25 per cent. The Division of Water Resources, Department a of Public Works, was appointed by the Court as Watermaster to supervise the operation of the interim agreement.21 An integral part of this agreement was an exchange pool which allowed those who had physical and economic difficulties in adjusting to a replacement of ground water with imported water to purchase rights to withdraw ground water in excess of their assigned quota from others who could purchase im- ported water more easily. During the first year of the interim agreement, ground water levels through most of the basin increased in eleva- tion from five to ten feet. Since then, ground water levels have remained relatively stable. From 1955 to 1961, the production of those who signed the interim agreement was held constant at less than 60,000 acre-feet per year. Total production from the basin was estimated to range be- tween 64,000 acre-feet and 67,000 acre-feet per year. One major water producer refused to sign the interim agreement and increased production to the harm and consternation of its neighbors. In August of 1961, sixteen years after the case was 21In July, 1956, due to an administrative reorganiza- tion, the Department of Water Resources succeeded to the duties and powers of Watermaster. 35 initiated, the trial court rendered a final judgment on the basis of a stipulated agreement presented to the court by all but one major West Basin water producer. Under the final judgment ninety-nine parties were decreed to have a total adjudicated rights of 64,000 acre-feet. The court retained jurisdiction to order a further curtailment, if necessary, at some future time. Watermaster services were continued to insure adherence to the judgment by all water producers and to inform the court and parties each year con- cerning ground water elevations, extent of salt water in- trusion, total production from and importation to the basin, and any infractions of the judgment. The final judgment was challenged by the one major producer who refused to sign the stipulated agreement and upheld by the District Court of Appeals. The California Supreme Court has denied a motion to review. Since October, 1961, all parties have reduced their production to equal their adjudicated rights under the judgment. While the West Basin case did not achieve the balance between demand and supply of ground water desired by some, several beneficial results were achieved by the protracted litigation. First, litigation ended the competitive race among water producers by returning total production to the 1942-43 level. Total ground water production from the basin has stabilized at less than 60,o000oo acre-feet per year since 1961. Secondly, the question of who should benefit 36 from the continued use of the basin and who should pay the costs of using an alternate supply were resolved. All major water producers active when the case was initiated were considered eligible for a share of future benefits, as well as a share of the proportionate costs of utilizing alternative supplies. Each producer's share was determined on the basis of the use he had made of the basin between 1944 and 1949. An adjudicated right gave a water producer the right to produce a certain quantity of water each year or to sell or lease his claim to that right.22 If a future curtailment is ordered by the court, each water producer will share the cost of this reduction proportionately. Third, litigation was successful in slowing down the rate of salt water intrusion. While the salt water front has advanced further into the basin since the curtailment was effected in 1955, the rate of advancement is slower than it was before 1955, or what it would have been without the court enforced curtailment. Annual demand for water in West Basin exceeded 255,000 acre-feet in 1963. To meet that demand, 196,000 acre-feet were imported and 59,000 acre-feet were pumped from the basin. If litigation had 22How valuable the right is to a water producer de- pends upon his need for storage to meet peak requirements or his need for water of particularly high quality. Now that rights to water are defined and can be bought and sold in a relatively free market, it is assumed that rights to water will move from uses with relatively low marginal value to uses with higher marginal value. A considerable number of transfers are taking place each year and appear to confirm this hypothesis. 37 not occurred, a much larger proportion of the current annual demand would be withdrawn from the basin which would have greatly accelerated the inland movement of salt water. By the 1950's, however, many individuals in West Basin became aware that litigation alone would not solve their problem of salt water intrusion and they began to think about the possibility of additional approaches toward solu- tion. The first two attempts to prevent further salt water intrusion were indirect in that they affected elements of supply and demand in relation to the basin. The third approach was a direct attempt to prevent salt water intru- sion itself by building a barrier against the sea. The Creation of a Barrier Against the Sea Even to contemplate building a barrier against the sea was an approach that took considerable imagination and courage. West Basin was exposed to the ocean along an eleven-mile western front between Palos Verdes and the Ballona escarpment, and to a lesser degree, along two four-mile southern fronts between Long Beach and Newport Beach. No one knew how or whether a barrier could be con- structed. Engineers had made several suggestions. Crea- tion of an underground fresh water ridge to hold back the sea appeared to be both technically feasible and the most economic solution. Individuals in West Basin appealed to the County Flood Control District to undertake a small 38 scale experiment to ascertain if fresh water injected into a well under pressure would create a fresh water mound beneath the well to prevent salt water from entering the basin at that point. Early experimentation in Manhattan Beach was successful. Individuals in West Basin next ap- pealed to the State to finance a large prototype experiment to establish whether a series of injection wells could prevent salt water intrusion along a one-mile western front. The State appropriated $750,000 for this project in 1951. While experimentation proceeded, individuals in West Basin began to search for appropriate institutional facili- ties that would enable them to construct and maintain a fresh water barrier along the eleven-mile western coast line. None of the existing public or private agencies had an appropriate combination of boundaries, powers or mode of representation. As a temporary measure, the associa- tion drafted legislation that would enable West Basin to form a zone of benefit within the Flood Control District roughly to coincide with the basin boundaries. Revenue could be raised within the zone from an ad valorem property tax to finance the maintenance of the one-mile barrier once the experimental phase was completed. By the end of 1953, the prototype barrier was declared a technical success. Not only did water injected into a series of wells function to hold back the sea, but most of the water entered the basin to help provide an additional 39 inflow of fresh water. However, the cost of a full barrier would greatly exceed the original expectations of water producers in West Basin. As a result of the experiment, the Flood Control District estimated a cost of $5,000,000 to construct the series of injection wells and an annual operating cost of $500,000, not including the cost of water. Water costs would vary from $312,000 to $1,040,000 per year depending upon the type of water used in the barrier. The Search for an Appropriate Management Enterprise Individuals who wanted to solve the water resource problems of West Basin and to insure the long term use of the basin as a peaking reservoir were in a quandry. They had tried several approaches to solution, but they had not yet forged an adequate set of institutional tools to permit them to insure the continued use of the basin as part of a water supply system. Some important steps had been made. Availability of an alternative surface supply would enable water producers to rely upon Colorado River water for a base supply and to meet peaking requirements from the basin. Litigation would eventually establish the propor- tionate rights of all water producers to water supplies in the basin, half the pumping race, give the court power to curtail withdrawals from the basin to an amount equal to the annual supply to the basin, and provide the necessary 40 technical information for an effective management program. The establishment of a barrier against the sea, the tech- nical feasibility of which had been determined, would free water producers from natural constraints resulting from low subsurface inflow and the basin’s proximity to the sea. There were a number of problems yet to be resolved. One of the first was a determination of an appropriate means of financing the construction, operation and main- tenance of a barrier. In essence, the question of who would pay for the barrier had to be settled. Many private water companies argued that funds should be raised by an ad valorem tax on the land which had benefited from the avail- ability of reserves of inexpensive ground water in the basin. This would place the burden of paying for the bar- rier on land owners regardless of their use of water. Many cities argued that the barrier should be paid for by water users in proportion to the amount of water used by placing a tax on the amount of water pumped by each producer. The incidence of cost under this proposal would fall primarily on the large water users. A third alternative was posed by a diverse group who argued that preservation of West Basin was of considerable interest to the State and that the association should attempt to gain State funds to finance the barrier. A second problem was the determination of the appro- priate boundary for seeking to achieve control over 41 significant events affecting water resources in West Basin and for containing the benefits of remedial actions. Prior to the early 1950's, association members had operated-under the assumption that the boundary of West Basin was the ap- propriate boundary for any action or assignment of cost. However, West Basin was so related to Central Basin that actions undertaken in either basin often had adverse or beneficial consequences for the other basin. As ground water production increased in Central Basin, the subsurface flow into West Basin decreased, reducing West Basin's fresh water yield. On the other hand, spreading imported water in the forebay areas of Central Basin, where aquifers underlying both basins rose near to the surface, increased the replenishment of West Basin as well as Central Basin. Furthermore, the construction of a barrier not only pro- tected West Basin against salt water intrusion, but it also afforded Central Basin a similar protection in the long run. If West Basin producers paid for the barrier by themselves, Central Basin producers would gain a benefit without sharing the cost. Water producers in both basins were beginning to acknowledge that the two basins were so interrelated that future attempts to solve water resource problems in either basin should be coordinated with action in the other basin. There was also the question of whether the San Gabriel Valley should also be included.23 230ne of the first steps taken toward increased 42 A third set of unresolved problems related to the in- stitutional facilities available for undertaking a more ambitious management program. Several existing agencies were quite interested in expanding their powers and duties to include ground water basin management. However, asso- ciation members feared the control of other agencies, such as the State, the Metropolitan Water District of Southern California, and the Los Angeles Flood Control District over West Basin. Many association members wanted to create a completely new entity which would be independent from existing agencies even though it might cooperate with other agencies to accomplish its functions. These questions, and many more, were discussed, argued and negotiated in the context of two different committees. The first was a committee of twelve men who held important positions in the water industry throughout Southern Cali- fornia, sponsored by the Conservation Association of Southern California. Two men active in the West Basin Water Association were members of this Committee of Twelve, one of whom served as chairman of the group. This committee cooperation between the two basins was the establishment of a Central Basin Water Association in 1950. The new asso- ciation employed as executive secretary the man who had served in this capacity in West Basin since the associa- tion's formation there. Since he continued to function in the same capacity in both basins he provided an essential communications link between the two associations. A third related water association was established in San Gabriel in 1956, called the Upper San Gabriel Valley Water Associa- tion, and again the same person was employed as executive secretary. 43 attempted to draft legislation to alleviate many of the problems faced by West Basin and other Southern California ground water basins. One of the most important results of the work of this committee was the drafting of a Ground Water Replenishment District Act which would enable an area like West Basin to create a new public enterprise with adequate financial powers to undertake an extensive ground water basin replenishment and management program. This draft was submitted to and enacted by the California Legislature in 1955.24 The second committee which functioned as a forum for the discussion and negotiation of these unresolved issues was the Water Replenishment District Boundary Committee appointed at first by the West Basin Water Association but soon merged with a similar committee appointed by the Central Basin Water Association. This committee recommended to both associations that a new Water Replenishment Dis- trict be created including both Central and West Basin to finance a program to replenish ground water supplies in both basins. Based on the recommendation of this com- mittee, the Central and West Basin Water Replenishment District was organized in November, 1959. 24California, Water Code, secs. 60000-60449. 44 Joint Operation of a Conjunctive Use System Most of the unresolved problems perplexing individuals interested in developing a ground water basin management program in West Basin were settled in the negotiations which led to the creation of the Central and West Basin Water Replenishment District. The question of appropriate methods to finance the barrier was resolved by relying upon two sources of revenue: the Replenishment District and the zone of benefit within the Flood Control District. The major source of revenue for the Replenishment District is a replenishment assessment or "pump tax" levied on all water production in both basins. This money is utilized by the Replenishment District to purchase water from Metro- politan and from the Los Angeles County Sanitation Dis- tricts for spreading in Central Basin and for injection into the barrier in West Basin. Therefore, the cost of water to seal off the sea, to increase the annual supply of ground water and to replenish prior overdrafts is borne by water producers and eventually by the users of that water. In addition, the zone of benefit within the Flood Con- trol District has been retained as a means of raising addi- tional funds from a $.05 ad valorem tax used for construct- ing the full barrier along the west coast. Participants in the negotiation of this settlement felt that land owners in the basin should bear the cost of constructing the barrier since the great increase in West Basin land values 45 had been made possible by the overdraft of the ground water supplies.25 Serious thought was given to the possibility of appealing to the State for funds to construct the bar- rier as an emergency measure. In fact, the association employed a professional lobbyist and introduced a bill which would have made State funds available for projects like the West Basin barrier. However, the association lost control of the legislation; and the State Department of Water Resources was given such extensive control over projects using the appropriated money that no one in West Basin attempted to gain funds from this source. The boundary problem was resolved partially by the creation of a Replenishment District to include both basins and partially by the initiation of two separate but related court actions. At the present time, the Replenishment District operates under the assumption that it can achieve its purposes of replenishment and management by having jurisdiction over the combined territory of West and Cen- tral Basins. Within its jurisdiction, the Replenishment District has acted so as to restore subsurface flow from Central Basin into West Basin and to reduce the annual overdraft in Central Basin. This was done by initiating litigation to adjudicate water rights of all water producers 25The Cities of Los Angeles and Long Beach are not in- cluded within the boundaries of that zone, since both of these cities have long relied primarily on imported water. 46 in Central Basin.26 An interim agreement similar to the one used in West Basin was successfully negotiated within nine months after litigation began. Ground water production in Central Basin has been reduced 20 per cent under this agreement. The City of Long Beach initiated the second civil action against water producers in the San Gabriel Valley.27 The effect of this case is to expand the boundaries to include the San Gabriel Valley in decisions affecting the flow of ground water from the San Gabriel Valley to Central and West Basins. Negotiations between parties to this suit appear to be leading toward an agree- ment hereby the lower basins will be guaranteed a stipu- lated annual surface and subsurface flow from the San Gabriel Valley regardless of increasing demands for water in the upper basin. The combined effect of creating the Replenishment District and initiating the two law suits will be the regulation of flow from the San Gabriel Valley and the control of the amount of water withdrawn in both Central and West Basins. It is expected that the San Gabriel Valley water producers will adjudicate water rights as among themselves some time in the near future which will 26Central and West Basin Water Replenishment District V. Charles E. Adams, et al., Case No. 7bb,656 in the Superior Court of the State of California in and for the County of Los Angeles. 27 City of Long Beach v. San Gabriel Water Company, Case No. 722,647 in the Superior Court of the State of California in and for the County of Los Angeles. 47 mean that relative water rights of all water producers along the entire water system will be determined and con- trolled. The resolution of problems related to the provision of appropriate institutional facilities to undertake a ground water basin management program was accomplished by adding a new public agency, the Central and West Basin Water Replenishment District, to the already existing structure of agencies involved in water resource problems affecting West Basin. The new district has come to play a central role in an evolving management system dependent upon the joint operation of a number of diverse public and private water agencies. The Replenishment District has extensive powers of its own, but it is also authorized to act jointly with or cooperate with any public or private agency which can help it to accomplish its purposes economically. The fact that the Replenishment District has extensive powers to accomplish the task of replenishing Central and West basins gives it strong bargaining power in negotiations with other districts which are interested in providing certain goods and services essential to the accomplishment of an effective management program. As a result of the efforts of West Basin water pro- ducers to avoid the costs of salt water intrusion, to gain supplementary supplies of water, to ration their production of ground water, to replenish ground water supplies and 48 generally to seek common solutions to common problems, a whole new superstructure has been added to the West Basin water industry. Extensive interagency negotiation has produced a management system which involves the services of the Central and West Basin Replenishment District, the Los Angeles County Flood Control District, the Metropolitan Water District, the Regional Water Pollution Control Board, the Los Angeles County Sanitation Districts, the State Department of Water Resources, a private engineering firm, several attorneys and the West Basin Water Association. The new structural configuration of the West Basin water industry can best be indicated by a recapitulation of the structure of the water industry in 1963. The Structure of the West Basin Water Industry--1963 The number of enterprises involved in the West Basin water industry in 1963 is much smaller than in 1945 even though the structure is much more complex. The decrease in numerical size is largely the result of consolidation of enterprises which produce water for sale to others and the elimination of a large number of agricultural producers. Only seventy-seven enterprises remain out of the 310 enter- prises that formally constituted the basic structure of the West Basin water industry. 49 Water Producers Enterprises Producing Water for Their Own Use Nine oil companies.-- While the same ten oil companies that produced water for their own use in 1945 have all con- tinued in business, one of them, Tidewater Oil Company, has discontinued water production entirely, even though it has an adjudicated right to 167 acre-feet per year.28 A second firm, Superior Oil, produced only one and one-third acre- feet of water even though this company possessed an adjudi- cated right to twenty-six acre-feet. Six of the remaining water producers withdrew in excess of 2,500 acre-feet each and Richfield Oil produced over 5,000 acre-feet. Total production for the group in 1963 was approximately 21,000 acre-feet. While the total production for this group has dropped 6,000 acre-feet since 1945, the oil companies have retained the same proportionate share (36 per cent) of the total yield of the basin that they possessed in 1945. However, total demand for water by the oil companies has increased considerably since 1945. Water purchased from neighboring public or private utilities has made up 28Californla, Department of Water Resources, Report of the Watermaster Service in the West Basin, Los Angeles County, for period October 1, 1962 thru September 30, 1963 (Sacramento: Government Printing Office, 1963), p. 24. Hereinafter cited as Watermaster, Report for ______to ____. unless otherwise noted, statistics presented in this section on the structure of the water industry in 1963 come from this Watermaster Report. 50 the difference between ground water production allowed under the court order and the demand for water by these companies. As a group the oil concerns purchased 47 per cent of their total supply of fresh water during 1963. In other words, most of the oil companies were able to meet at least 50 per cent of their fresh water requirements by their own production. The one major exception is Standard Oil, which purchased 72 per cent of its fresh water from the City of El Segundo. Standard Oil has adjudicated rights to 4,601 acre-feet per year, but the company has followed the strategy of producing only about one half of its adjudicated rights each year in order to slow down the encroachment of salt water on its well fields located close to the advancing saline water. When the fresh water barrier is completed to the ocean side Of Standard Oil's water well field, Standard Oil plans again to produce its full 4,601 acre-feet of ground water per year and reduce the quantity of fresh water purchased from the City of El Segundo. Standard Oil continues to use vast quantities of ocean water. During 1963, Standard Oil consumed about eight times as much sea water as its total use of fresh water. Most of the oil companies have introduced extensive facilities to conserve and reuse ground water. The quality of Metropolitan water is inferior to that of local ground water. For some specialized processes, Metropolitan water 51 has to be given an expensive purification treatment prior to its use. As a result, the oil companies have been very concerned about the preservation of the basin as a source of a high quality water for specialized industrial pro- cesses. Ten industrial producers.--While twelve industrial con- cerns possess adjudicated rights, only nine of these con- tinue to be active producers. One industrial producer, a paper stock company, has no adjudicated rights, but produced two and one-half acre-feet of ground water during 1963. Individual production ranges from less than one acre-foot to nearly 900 acre-feet. U. S. Steel Company, Johns- Manville and Stauffer Chemical were the three largest ground water producers in this group during 1963. The in- dustrial concerns as a group produced a total of 3,024 acre-feet, which constituted 5 per cent of the total pro- duction from the basin. Water purchased from public or private water agencies composed only one third of the total supply used by the industrial producers. Two sand and gravel concerns pro- duced all of their water from the basin. In fact, both of these firms produced a greater quantity of ground water than their adjudicated rights by purchasing exchange water through the exchange pool administered by the Watermaster Service. U. S. Steel was able to produce 90 per cent of its supply from the basin, Johns-Manville produced 69 per 52 per cent, and Stauffrer Chemical produced 50 per cent of its total fresh water supply from West Basin. Forty-three nonindustrial Producers.--A total of fifty-eight nonindustrial enterprises possess adjudicated rights to water in West Basin; but of this number, only twenty-seven produced a total of 1,802 acre-feet during 1963. This represented about 5 per cent of the total ground water production from the basin. In addition, sixteen enterprises without adjudicated rights withdrew 373 acre-feet from the basin during the same period. Only one of these sixteen producers without rights purchased exchange water to cover his production of ground water. The largest producer in the nonindustrial group is Los Angeles County, which produced 443 acre-feet to irrigate a county park. The Hollywood Turf Club and the Dominguez Estate Company were the second and third largest ground water producers in this group. Fifteen of these producers withdrew less than ten acre-feet. Most of the nonindustrial producers are farmers who are primarily dependent upon the basin for a source of relatively inexpensive water to irrigate truck farms. There are also several nurseries included within the group. Twenty-one of these producers do not purchase any water supplies from public or private water agencies except for their domestic consumption. The other producers in this group purchased a total of 1,314 acre-feet from public 53 and private water agencies serving their localities, which represented 58 per cent of their total supply. Seven enter- prises, including three schools and four private individu- als, possess adjudicated rights but did not produce any ground water and purchased a total of 356 acre-feet from public or private water agencies. Enterprises Producing Water for Sale Seven cities.--Since 1945 there has been no change in the number of cities which maintain municipal water depart- ments or municipal water districts to sell water to indi- viduals and firms located within their boundaries.29 As shown on Table III, the cities as a group produced a total of 12,727 acre-feet which represented 21 per cent of the total production from the basin. The cities as a group are currently producing about 600 acre-feet more than they were in 1945. Their proportionate share of the basin yield has increased from 16 per cent to 21 per cent. The demand for water in the seven cities providing water to their residents has doubled since 1945. Water to meet this increase in demand has been provided by imported supplies. Most of the 110,000 acre-feet currently imported 29One Municipal Water District now serves almost the entire area included within the boundaries of the City of Torrance. Several private water companies have been pur- chased by the city in order to consolidate its water system and to provide more efficient service to an expanding urban area. One County Waterworks District still serves a small portion of the City of Torrance, as well as surround- ing unincorporated territory. 54 T o t a l W a t e r S u p p l i e d 1 1 , 8 7 2 4 , 8 7 9 1 1 , 2 7 6 2 6 , 7 6 4 4 3 , 9 8 8 5 , 3 1 5 1 8 , 5 6 0 1 2 2 , 6 4 5 P e r c e n t a g e o f I m p o r t e d W a t e r 9 4 6 0 6 2 1 0 0 9 6 7 7 8 2 9 0 I m p o r t e d W a t e r 1 1 , 3 5 8 2 , 9 4 2 6 , 9 6 8 2 6 , 7 6 4 4 2 , 3 3 0 4 , 2 4 0 1 5 , 3 1 6 1 0 9 , 9 1 8 A m o u n t o f G r o u n d W a t e r P r o d u c e d 5 1 4 1 , 9 2 8 4 , 3 0 8 0 1 , 6 5 8 1 , 0 7 5 3 , 2 4 4 1 2 , 7 2 7 T a b l e I I I S o u r c e a n d Q u a n t i t y o f W a t e r S u p p l i e d b y M u n i c i p a l i t i e s 1 9 6 3 ( i n a c r e - f e e t ) M u n i c i p a l i t y E l S e g u n d o H a w t h o r n e I n g l e w o o d L o n g b e a c h L o s A n g e l e s M a n h a t t a n B e a c h T o r r a n c e T o t a l 55 by these cities was purchased from the Metropolitan Water District through the West Basin Municipal Water District. However, the City of Los Angeles also imported water from its Owens Valley aqueduct and the City of Long Beach imported some ground water from Central Basin to meet demands in West Basin. Two county waterworks districts.--These two districts still operate municipal water systems in the same locations near El Segundo and Torrance. The current ground water production of these two districts is approximately 1,000 acre-feet per year. During 1963, they sold the right to pump 400 acre-feet of water to the County of Los Angeles for park maintenance through an exchange pool arrangement between the two County Waterworks Districts and the County of Los Angeles, approved but not administered by the Watermaster. Six private water companies.--Four of the five rela- tively large water companies remain as active producers in West Basin. California Water Service Company, Dominguez Water Corporation, Palos Verdes Water Company and Southern California Water Company serve areas somewhat enlarged be- yond the service areas that they served in 1945. Moneta Mutual Water Company continued in operation until early 1963, when the City of Torrance won an action condemning the real property of this company; and the water distribu- tion system and water rights of Moneta Mutual were 56 transferred to the City of Torrance. Only two of the smaller companies which previously served West Basin remain as water producers. Belvidere Mutual Water Company is a very small company serving a section of land located between Hermosa Beach and Gardena. The Park Water Company is a somewhat larger enterprise serving an area just west of Gardena. As shown in Table IV, these six companies pro- duced a total of 19,111 acre-feet during 1963. This repre- sented a drop in their total production of over 2,500 acre- feet, compared with 1945, but a slight rise of 2 per cent in their