INTERIOR SECRETARY Donald Hodel has now reversed a position that not even James Watt would disturb. He has agreed to settle a longstanding dispute with one of the largest federal water users in the West -- Westlands, a reclamation district that includes some of the leading corporate farmers in central California. Westlands was long ago given the right to buy 900,000 acre-feet of federal water a year at a low price to irrigate some 500,000 acres. It then expanded, and claimed the right to buy at the same price about a third more water for a third more land. The department resisted, and in the 1982 Reclamation Reform Act, which Westlands helped inspire, Congress said that in all future water contracts and all future renegotiations of old contracts, prices should be higher. Meanwhile, Westlands had taken the department to court.

Essentially Mr. Hodel has agreed to let Westlands have all the water it wants, paying the old price for three-fourths and a higher price only for the rest. He has also left open a second point of contention with the district: how to dispose of the excess water that comes off the fields, and who should pay for that. The department had earlier insisted that Westlands pay for a drain. One had been built to take water to a nearby wildlife refuge; now it turns out that the water involved, because of chemicals picked up in the irrigation process, is poison. Any new solution will be costly; some estimates are over half a billion dollars. Westlands for now is required only to put $5 million a year in a trust fund toward its share.

The thrust of the 1982 law was to ensure that in the future users of federal water would pay more, in part for reasons of fairness, in part to help conserve a scarce resource. A lot of federal water goes to large commercial users who do not need or deserve the subsidy they get. Among agricultural users particularly, a lot of water is also wasted: The theory was that a higher price would bring them to economize. In the Westlands case, there is now the added drainage problem.

Mr. Hodel, in the settlement to which he has agreed in this heavily lobbied affair, says he has advanced the public interest; that he has saved years of litigation while upholding the 1982 law; that he has won a higher price for part of the water and moved closer to a settlement of the drainage issue. He points out as well that the Westlands growers had come with some cause to rely on the federal water. But our sense is that he has not aggressively championed the federal interests in this case. Westlands has cause to be happy; it will get its water, and still at a favorable price. The complex lawsuit will be settled; the secretary gives great thanks for that. But the underlying issues of waste and poison and fairness will remain.