Ninth Circuit Affirms Reclamation’s Central Valley Project Contract Conversions under the Water Infrastructure Investment for the Nation Act

August 26, 2026

Water Law

On August 17, 2026, a unanimous panel of the Ninth Circuit Court of Appeals rejected a years-long challenge to the United States Bureau of Reclamation’s (“Reclamation”) conversion of certain federal water service contracts, granting a significant win to the municipal and irrigation contractors relying on those agreements to provide water to cities and farms across California. Center for Biological Diversity et al. v. United States Bureau of Reclamation et al. (Case No. 25-5137) (“CBD v. Reclamation”).

In denying Plaintiffs’ appeal, the panel held that Reclamation was not required to conduct separate environmental review before allowing its eligible Central Valley Project (“CVP”) contractors to prepay the capital cost of their contracts under the Water Infrastructure Improvements for the Nation Act of 2016 (“WIIN Act”).  The Act directed the prepaid funds to water storage infrastructure and converted the contracts into a repayment contracts without requiring future renewals or otherwise altering the terms of water delivery.  Recognizing that Reclamation already conducts systemwide environmental review of ongoing CVP operations, the Court held that the WIIN Act imparted a mandatory duty to convert contracts upon request that “does not allow Reclamation to consider environmental effects or take actions that could benefit protected species as part of the contract conversion process.”

The decision provides an additional layer of certainty and reliability for agriculture, hydropower and municipalities throughout California’s Central Valley.

The WIIN Act Creates Contract Conversion to Incentivize Storage Infrastructure

Each of the existing 67 water service contracts at issue in this action contained provisions that allowed Reclamation to allocate and recover the capital costs associated with constructing the Central Valley Project over an extended period of time. The WIIN Act, enacted in 2016 on the tail end of a protracted California drought, allowed CVP water service contractors to make an early repayment of those costs without altering the quantity or terms of delivery of the water in their contracts, thereby converting their existing water service contracts into repayment contracts.

Unlike a water service contract, which functions like a lease and expires at the end of its term, a converted repayment contract continues indefinitely so long as the contractor keeps up its payments for water delivery and ongoing project operation and maintenance. Beginning in early 2019 and continuing through 2021, Reclamation undertook the lengthy process of converting  67 water service contracts under this mechanism, covering nearly three million acre-feet of water deliveries annually. Downey Brand represented 23 of the 67 water service contractors through the two-year conversion process, from initial notice to the final execution of the converted contracts and associated financial transactions allowing their multi-million dollar repayments. That early repayment, in turn supported investments in water storage infrastructure throughout the Western states.

During the same period Reclamation consulted with the United States Fish and Wildlife Service and National Marine Fisheries Service under the Endangered Species Act to evaluate the long-term operation of the CVP, including water deliveries made under the converted contracts.  In 2024, biological opinions were issued and Reclamation approved its operational plan in accordance with the National Environmental Policy Act (“NEPA”).

District and Appellate Courts Uphold the Contract Conversions

In 2020, Plaintiffs Center for Biological Diversity, Restore the Delta, and Planning and Conservation League sued Reclamation and the Department of the Interior, arguing that Reclamation was obligated to perform contract-specific NEPA review and ESA consultation before converting each contract, and that its failure to do so violated the Administrative Procedure Act. In 2025, the district court granted summary judgment for Reclamation and the water districts that had converted their contracts, holding that Section 4011(a) of the WIIN Act does not afford Reclamation any discretion to modify contractual terms beyond the payment structure. Plaintiffs timely appealed.

Writing for a unanimous panel of the Ninth Circuit Court of Appeals, Judge Sanchez explained that both NEPA and ESA Section 7(a)(2) apply only where an agency retains some discretion to consider environmental effects or to act for the benefit of listed species. Reading Section 4011(a)(1) and Section 4011(a)(4) together, the panel held that the WIIN Act imposes a mandatory, nondiscretionary duty on Reclamation to convert a water service contract upon a contractor’s request, and permits the agency to negotiate only those terms tied to the contract’s payment structure. Section 4011(a)(4)(C)’s directive that converted contracts not “modify other water service . . . contractual rights” forecloses any agency discretion over the amount or manner of water delivery during conversion. Because conversion is nondiscretionary, the panel concluded, neither NEPA nor the ESA required Reclamation to prepare an environmental impact statement or consult with the Services before converting each contract.

The panel distinguished its 1998 decision in Natural Resources Defense Council v. Houston, on which Plaintiffs relied to argue that the WIIN Act’s “mutually agreeable terms and conditions” language preserved Reclamation’s discretion. The panel explained that the Reclamation Act renewal provision at issue in Houston contained no analogous restriction confining negotiations to payment terms, whereas the WIIN Act expressly limits Reclamation’s ability to negotiate only prepayment terms and bars modification of other contractual rights. The panel also rejected Plaintiffs’ argument that changes to certain articles during conversion demonstrated that Reclamation had exercised broader discretion, finding that those changes simply reflected the ordinary transformation of a term-limited water service contract into a repayment contract.

Finally, the panel held that its reading of Section 4011(a) is consistent with the WIIN Act’s savings clauses preserving obligations under the Central Valley Project Improvement Act, the ESA, and other existing law, because those clauses preserve only obligations that otherwise exist — and no NEPA or ESA obligation attaches to a nondiscretionary conversion in the first place. The panel emphasized that its holding is made in the context of the systemwide environmental impact statement and biological opinions that already govern CVP operations, including water deliveries under the converted contracts.  The decision builds on the Ninth Circuit’s 2024 opinion in Natural Resources Defense Council v. Haaland, 102 F.4th 1045 (9^th Cir. 2024), which held that Reclamation complied with the ESA in consulting on renewals of long-term CVP water contracts.  Together the decisions bring certainty to the CVP water contracts that provide long-term reliability of water supplies throughout the state.

Downey Brand attorneys Alyson Ackerman, Brian Hamilton, Meredith E. Nikkel, Rebecca R.A. Smith, and Michael Vergara joined a broad coalition of water lawyers in defending the contract conversions on behalf of water service contractors, alongside Reclamation. Downey Brand attorney Meredith E. Nikkel argued the case on behalf of the Contractors before the three-judge panel on May 22, 2026, in San Francisco.

For more information, please contact the Downey Brand water law team.