DONALD P. HODEL, SECRETARYOF THE INTERIOR, ET AL., PETITIONERS V.
STATE OF MISSOURI, ET AL.

   No. 86-941

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for a Writ of Certiorari to the United States Court of
Appeals for the Eighth Circuit

   Reply Brief for the Federal Petitioners

   In our petition for a writ of certiorari, we urged this Court to
review the decision in this case because it erroneously resolves a
question of great importance to the development of the Missouri River
Basin's water resources.  Respondents' contentions that the decision
below is neither important nor incorrect do not withstand scrutiny.

   A. Respondents argue that there is no need for this Court to review
the court of appeals' decision because the ETSI project has been
terminated (Mo. Br. in Opp. 6;  KCS Ry. Br. in Opp. 7-8).  /1/ That
contention misses the point.  The contract between ETSI Pipeline
Project (ETSI) and the United States was signed on July 2, 1982, and
runs for a term of 40 years (C.A. App. 388, 389).  Under Section 7(b)
of the contract, the United States may elect to terminate the contract
if, by the end of ten years, ETSI has not "shown evidence that
substantial construction is underway" (id. at 392).  ETSI has
suspended activity under the contract and has allowed its water right
from the South Dakota Conservancy District to lapse.  However, these
developments are hardly surprising in light of the district court's
permanent injunction barring performance of the contract. It would
make little economic sense for ETSI to continue to pay for a water
right which it is enjoined from using, especially when it can reapply
for another water right at a later date.  Under the terms of the
contract, ETSI has several more years -- until 1992 -- to perform.  In
the interim, the contract remains in effect.  /2/

   KCS Railway also suggests that the Department of the Interior's
program for marketing unutilized irrigation water has become "dormant"
(KCS Ry. Br. in Opp. 8).  This, too is inaccurate.  As noted in our
petition (Pet. 13), the United States, through the Interior
Department, has entered into three similar contracts to supply water
from mainstem reservoirs operated by the Department of the Army, and
water service has begun on two of those three contracts.  /3/
Respondents suggest that these contracts are distinguishable because
they were entered into under the terms of a now-expired Memorandum of
Understanding (MOU) between the Secretary of the Interior and the
Secretary of the Army designed to facilitate development of western
energy resources (C.A. App. 181).  /4/ The MOU, however, is irrelevant
to the question whether Interior may supply unutilized irrigation
water for industrial use.  Either the Secretary of the Interior has
the statutory authority to execute such contracts or he does not.  The
existence of the MOU could not confer on him authority that he lacked,
and the expiration of the MOU could not terminate authority that he
has been granted by statute.  /5/

   In short, the ETSI contract remains in effect and Interior's
industrial water marketing program is far from dormant.  Thus, as
stated in our petition, the case presents a live question of
substantial importance that merits this Court's review.

   B. Respondents also argue (Mo. Br. in Opp. 8;  KCS Ry. Br. in Opp.
8-11) that this case lacks importance because the Army may market
water for industrial use from mainstem reservoirs pursuant to Section
6 of the Flood Control Act of 1944, ch. 665, 58 Stat. 890 (codified at
33 U.S.C. 708), and may provide industrial water storage in reservoir
projects under the Water Supply Act of 1958, 43 U.S.C. 390b(b).
However, the existence of that statutory authority does not diminish
the importance of this case.

   Obviously, the fact that the Secretary of the Army may have power
to market water from the mainstem reservoirs does not mean that the
Secretary of the Interior lacks such authority.  /6/ Moreover, there
are important legal and practical differences between the Army's and
Interior's marketing authority.  The Army is not subject to a specific
obligation to comply with state water law in marketing water for
industrial use.  By contrast, Interior's authority to market water is
circumscribed by Section 9(c) of the Flood Control Act, which provides
that "reclamation and power developments to be undertaken by the
Secretary of the Interior * * * shall be governed by the Federal
Reclamation Laws" (58 Stat. 891).  The federal reclamation laws, in
turn, specifically mandate that Interior recognize the states'
traditional role in determining the appropriate beneficial uses of
water.  /7/ This distinction is of crucial importance to the Upper
Missouri River Basin's states.  /8/

   Furthermore, when the Army markets water, the financial
consequences are different from those that result when Interior
markets water.  The proceeds from the Army's water marketing contracts
"shall be deposited in the Treasury of the United States as
miscellaneous receipts." See 33 U.S.C. 708.  When Interior receives
revenue from its industrial water contracts, those proceeds are
applied to recoup the costs of reclamation developments.  See 58 Stat.
891.  This recoupment feature is a central element of the Pick-Sloan
program and is an important concern for Interior's Bureau of
Reclamation in managing its activities in accordance with Congress's
fiscal requirements.

   Thus, the fact that the Army may have authority to market "surplus"
water from the mainstem reservoirs does not diminish the importance of
this case.  By excluding Interior from any control over unused
irrigation water stored in the mainstem reservoirs, the court of
appeals departed from congressional intent, denied the Bureau of
Reclamation an important source of revenues for payback of its
reclamation expenditures, and created new uncertainties concerning the
states' ability to control water within their borders.

   C. Respondents' arguments (Mo. Br. in Opp. 9-12;  KCS Ry. Br. in
OPP. 11-15) that the Secretary of the Interior has no authority to
enter into water service contracts supplying unutilized irrigation
water from Oahe Reservoir are unpersuasive.  As we explained in our
petition (Pet. 14-17), Section 9 of the Flood Control Act addressed
the particular problems associated with development of the Missouri
River Basin's water resources through adoption of the Pick-Sloan Plan.
 58 Stat. 891 (see Pet. 7).  This Plan provided that the Army Corps of
Engineers and Interior's Bureau of Reclamation would jointly develop
the Missouri River Basin, based on a functional division of authority
(see id. at 14-15).  The Army would have chief responsibility for the
flood control and navigation features of the program, while Interior
would be responsible for reclamation and power aspects of the program.
 We outlined in our petition (id. at 14-16) the documents that
Congress adopted in enacting the Pick-Sloan program and that expressly
stated that the Secretary of the Interior would control the
utilization of reservoir storage capacity designed for irrigation
waters.

   As previously noted, Section 9(c) of the Flood Control Act
specified that the Secretary of the Interior's authority under the
Pick-Sloan program would be circumscribed by the federal reclamation
laws.  Interior has relied on Section 9(c) of the 1939 Reclamation
Project Act, 43 U.S.C. 485h(c) (which authorizes the Secretary of the
Interior "to enter into contracts to furnish water for municipal water
supply or miscellaneous purposes"), to market presently unutilized
irrigation water.  Respondents do not dispute that the Secretary can
rely on this provision to supply irrigation water from Bureau of
Reclamation reservoirs authorized and constructed as part of the
Pick-Sloan Plan.  See Environmental Defense Fund, Inc. V. Andrus, 596
F.2d 848 (9th Cir. 1979).  We submit that the Secretary may also rely
on that authority to market water from mainstem reservoirs, where
Interior shares responsibility with the Army in developing water
resources.  /9/

   Respondents journey outside of Section 9 of the Flood Control Act
to attack the Secretary's authority.  They mistakenly contend (Mo. Br.
in Opp. 11;  KCS Ry. Br. in Opp. 4, 12-13) that the legislative
history of Section 6 and Section 8 of the Flood Control Act show that
Congress intended to preclude the Secretary from entering into
industrial water contracts involving unused irrigation water stored in
mainstem reservoirs.  Section 6 of the Flood Control Act gives the
Army general authority to market "surplus water that may be available
at any reservoir under the control of the War Department" (58 Stat.
890).  And Section 8 provided a mechanism for Interior, "(h)ereafter,"
to add additional irrigation works to reservoirs operated under the
direction of the Army (58 Stat. 891).  These sections, which address
the Army's and Interior's general authorities at Army operated
reservoirs, are simply not relevant in determining the Secretary of
the Interior's specific authority to administer the reclamation
aspects of reservoirs authorized as part of the Pick-Sloan program by
that same Act.

   Respondents place particular reliance on a letter sent from
Secretary of the Interior Ickes to a congressional committee (see
86-939 Pet. App. 28a-29a) proposing that Section 6 (then numbered as
Section 4 of the bill) be amended expressly to authorize Interior's
marketing of "surplus" water from reservoirs utilized for irrigation
purposes under Section 8 of the Act (then numbered as Section 6 of the
bill).  Secretary Ickes' suggestion was not adopted, and respondents
(like the court of appeals) mistakenly interpret that instance of
congressional inaction as demonstrating that Congress intended that
the Secretary would have no authority to market unutilized irrigation
water from the main stem reservoirs of the Pick-Sloan program.  That
inference is plainly unsound.  Congress enacted a specific statutory
provision, Section 9 of the Flood Control Act, to deal with the
special need for coordinated water resource development in the
Missouri River Basin.  The fact that Congress failed to adopt
Secretary Ickes' proposed amendment of Section 6 says nothing about
the authority conferred under Section 9, which specifically addressed
the particular circumstances of the Missouri River Basin.  Secretary
Ickes' proposed amendment addressed other situations, arising in the
future under Section 8 of the Act, where Interior would "(h)ereafter"
(58 Stat. 981) add additional irrigation works to reservoirs operated
by the Army.

   Respondents' citations to the legislative history of Section 8 (Mo.
Br. in Opp. 11;  KCS Ry. Br. in Opp. 12) suffer from the same flaw.
Section 9 of the Flood Control Act, rather than Section 8, determines
the scope of the Secretary of the Interior's authority in
administering the Pick-Sloan program.  /10/ There is, accordingly, no
basis for respondents' contentions (Mo. Br. in Opp. 9-10;  KCS Ry. Br.
in Opp. 13-15) that the Secretary's interpretation of Section 9 is not
entitled to deference.  /11/

   D. As we explained in our petition for a writ of certiorari, the
court of appeals' decision, if left standing, would deprive the
Secretary of the Interior of both the authority over waters that were
originally intended to be used for irrigation purposes and the ability
to obtain repayment of the costs of such use, it would seriously
undermine the concept of shared jurisdiction that is central to the
Pick-Sloan Plan, and it would restrict the ability of the federal
government -- and the states where the water is stored -- to put large
portions of the Missouri River Basin's water resources to beneficial
use.  Respondents, at bottom, simply seek to reap parochial benefits
from that very troublesome result.

   For the foregoing reasons and for the reasons set forth in the
petition for a writ of certiorari, it is therefore respectfully
submitted that the petition should be granted.  /12/

   CHARLES FRIED

      Solicitor General

   FEBRUARY 1987

   /1/ We shall refer to the brief in opposition filed on behalf of
the lower basin states (Missouri, Iowa and Nebraska) as "Mo. Br. in
Opp." We shall refer to the brief in opposition filed on behalf of the
Kansas City Southern Railway Company et al. as "KCS Ry. Br. in Opp."

   /2/ Respondents attach undeserved importance to the fact that
Energy Transportation Systems, Inc., no longer exists as a corporate
entity.  See Mo. Br. in Opp. 6 n.2;  KCS Ry. Br. in Opp. 8.  ETSI
Pipeline Project has asked to be substituted as a party in this case.
See ETSI Reply Br., No. 86-939, at 1 n.1.  KCS Railway also seems to
suggest that the present controversy is moot (ibid.).  Such a
contention is plainly meritless.  The court of appeals expressly
rejected respondents' previous contentions of mootness, affirming the
district court's findings that the contract has not been terminated or
abandoned.  See Missouri v. Andrews, No. 84-1674 (8th Cir. Apr. 22,
1985) (unpublished order), aff'g No. CV82-L-442 (D. Neb. Feb. 12,
1985) (unpublished order).  We have reproduced these orders as an
addendum to this brief.

   /3/ In addition, Interior is presently investigating the
possibility of providing water to another party -- Nakota, Inc. --
that wishes to obtain a water supply for industrial use.

   /4/ Only two of those contracts -- with Basin Electric Power
Cooperative (C.A. App. 191) and the State of Montana (Montana Amicus
Br. 2-3) -- were entered into under the terms of the MOU.  Montana has
not exercised its rights under the contract because, in part, of the
uncertainty generated by this litigation (ibid.).  The third contract,
with ANG Goal Gasification Company, refers to the MOU, but was signed
after the MOU expired (C.A. App. 183, 192).

   /5/ We do not agree with respondents' characterization of the MOU.
In particular, Missouri mistakenly asserts (Mo. Br. in Opp. 4) that
the MOU required Army approval of each individual contract.  The MOU
expressly stated that "the Secretary of the Interior may * * *
contract for the marketing of water for industrial uses and incidental
purposes related thereto from the six main stem reservoirs * * * "
(C.A. App. 181).

   /6/ Notably, the lower basin states contended in their second
amended complaint (at paragraphs 100-101) that the Army, as well as
Interior, lacked authority to market water from Oahe because the water
stored there was not "surplus" within the meaning of Section 6 of the
Flood Control Act.  The Army stated in 1974 that "water from the main
stem reservoirs may not be marketed by the Secretary of the Army as
'surplus' water under section 6 of the 1944 Act" (C.A. App. 176 n.*).
The Army has recently determined that water in mainstem reservoirs
may, in certain instances, be termed "surplus." However, at present,
Army does not treat unutilized irrigation water at Oahe as "surplus"
water.

   /7/ Section 8 of the Reclamation Act of 1902 provides (43 U.S.C.
383):

         Nothing in this Act shall be construed as affecting or
      intended to affect or to in any way interfere with the laws of
      any State or Territory relating to the control, appropriation,
      use, or distribution of water used in irrigation, or any vested
      right acquired thereunder, and the Secretary of the Interior, in
      carrying out the provisions of this Act, shall proceed in
      conformity with such laws, and nothing herein shall in any way
      affect any right of any State or the Federal Government or of
      any landowner, appropriator, or user of water in, to, or from
      any interstate stream or the waters thereof.

   See California v. United States, 438 U.S. 645 (1978).

   /8/ Indeed, the states of Montana, North Dakota, South Dakota, and
Wyoming, have all expressed concern that the court of appeals'
decision will hamper future water resource development in the Missouri
River Basin and have all urged this Court to grant the petition for a
writ of certiorari.  See Amicus Brief for the States of North Dakota,
South Dakota, and Wyoming;  Amicus Brief for the State of Montana.

   /9/ The lower basin states contend (Mo. Br. in Opp. 10-11) that
because Interior has not designated water in the mainstem reservoirs
as stored irrigation water, there is no "defined irrigation storage"
at Oahe (id. at 10).  However, that contention misapprehends the
manner in which the mainstem reservoirs were designed and are
operated.  The Oahe Reservoir was designed, at the Bureau of
Reclamation's suggestion, to accommodate irrigation storage needs.
See Pet. 4-6, 14-15 & n.16.  The irrigation needs, for a number of
reasons, have not materialized and the reservoir, as a result,
contains substantial unutilized irrigation storage capacity.  Water
impounded in the Missouri Basin mainstem reservoirs is not segregated
according to particular functions;  there is no separate allocation
for flood control, navigation, irrigation or any of the various other
project purposes.  But the absence of such designations does not
negate the fact that a very substantial portion of Oahe's capacity was
designed for storing irrigation water, and that water, at present, is
not being put to irrigation use.

   /10/ Moreover, we disagree with KCS Railway's interpretation of
that legislative history.  It contends that "Congress struck language
from Section 8 which would have granted the Interior Secretary some
authority to manage water stored in main stem reservoirs" (KCS Ry. Br.
in Opp. 4;  see also id. at 12).  It is apparent from the face of the
amendments that Congress clarified and broadened Interior's future
authority to control waters stored in Army-operated reservoirs.

   /11/ For example, the lower basin states simply dismiss Interior's
interpretation as "poorly reasoned" (Mo. Br. in Opp. 10).  And the KCS
Railway contends that Interior's interpretation of Section 9 is not
entitled to deference because "the 1944 Act simply does not empower
Interior to market water for industrial use from Oahe Reservoir" (KCS
Ry. Br. in Opp. 14), an argument that simply assumes its conclusion.
The fact of the matter is that Section 9 broadly empowers Interior to
administer the reclamation aspects of the Pick-Sloan Plan.  The court
of appeals therefore erred in holding that Interior's interpretation
is "not entitled to judicial deference" (86-939 Pet. App. 34a).  See,
e.g., United States v. City of Fulton, No. 84-1725 (Apr. 7, 1986),
slip op. 9.

   /12/ We suggest that the petition for a writ of certiorari in
Energy Transportation Systems Inc. v. Missouri, No. 86-939, also be
granted and that the cases be set for consolidated review.

   APPENDIX