The authority of federal agencies to acquire, use, or distribute surface waters in the western states was dealt a dramatic setback by the United States Supreme Court on July 3. In California v. United States¹ the Court read §8 of the Reclamation Act of 1902² to require federal agencies constructing reclamation projects to comply with state-imposed limitations on the use of project waters except where such limitations are inconsistent with the statutory objectives of the project. The Court thereby threw a major roadblock in the path of the Bureau of Reclamation's proposed New Melones Dam. On the same day, in United States v. New Mexico,³ the Court declared that federal reservations of land from the public domain do not by implication include reservations of waters flowing through or alongside such lands, except for the minimum amount of water essential to the specific purposes for which the land was reserved. The upshot in that case was to deny the United States Forest Service's assertion of water rights in a river running through the Gila National Forest for the purposes of maintaining the environmental and aesthetic characteristics of the forest.

Each of the cases marks a change in direction, if not an about-face, from the previous state of the law in its respective area. Prior interpretations of § 8 of the Reclamation Act have unanimously rebuffed attempts by the states to exert greater influence over federal reclamation initiatives. Likewise, prior interpretations of the "reserved rights doctrine" exhibit a strongly profederal cast, prompting one commentator to characterize the doctrine as a "substantive National Environmental Policy Act" which confers upon federal land managers extensive powers to take state waters to enhance the environment of the federal lands through which they flow.⁴ It is thus a fair observation that these cases represent a watershed of sorts in the history of the federal-state rivalry over the use of western water.