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Federal Reserved Groundwater and California

On November 27, 2017, the United States Supreme Court denied certiorari regarding the Ninth Circuit’s decision in Agua Caliente Band of Cahuilla Indians v. Coachella Valley Water District, 849 F.3d 1262 (March 7, 2017). Thus, the Supreme Court left in place the appellate decision, which was the first to hold that an Indian tribe may claim reserved rights in groundwater resources.

The United States formed the Agua Caliente Reservation through executive orders in 1876 and 1877, with the purpose of providing a sustainable home in the Coachella Valley for the Agua Caliente Band of Cahuilla Indians. Surface water in the area is limited to relatively small quantities in the Whitewater River System, so that the vast majority of local water supplies are derived from groundwater. Production and use of groundwater by local cities and agriculture have resulted in cumulative overdraft of the Coachella Valley Basin by approximately 5.5 million acre-feet since the 1980s. Historically, the Agua Caliente Tribe has not produced groundwater directly from the Basin, but has purchased water (including groundwater, surface water and imported water supplies) from the Coachella Valley Water District (CVWD) to meet its needs.

In 2013, the Tribe filed an action for declaratory and injunctive relief against the two largest producers of groundwater from the Basin, CVWD and Desert Water Agency (DWA). The parties and court divided the litigation into three phases, the first of which concerned whether the Tribe holds reserved groundwater rights and resulted in the decisions of the Ninth Circuit and Supreme Court.

As recognized in a long line of cases, when the United States reserves lands from the public domain for specific purposes, that reservation impliedly includes water resources that are necessary to accomplish its purposes. See United States v. New Mexico, 438 U.S. 696, 701 (1978); Cappaert v. United States, 426 U.S. 128, 138 (1976); Arizona v. California, 373 U.S. 546, 600 (1963); Winters v. United States, 207 U.S. 564, 575-78 (1908). The reservation of land and water rights for federal purposes may be for Indian, military, forestry or other purposes. Importantly for the development of water resources in the western states, reserved rights vest on the date of the reservation and are superior to the rights of subsequent appropriators under state law.

Although the doctrine of federal reserved water rights has been established for over 100 years, no federal appellate court had ever directly considered whether the United States could reserve rights in groundwater as well as surface water. The Ninth Circuit held that there is no meaningful distinction between the two sources of water when considering the achievement of federal purposes, and so extended the possibility of reserved rights to groundwater. CVWD and DWA argued that it was unnecessary for the court to recognize federal reserved rights for the Tribe in the Basin, because California law would provide correlative, overlying groundwater rights for the Tribe. The Ninth Circuit disagreed, noting that reserved rights are a creature of federal law and thus preempt conflicting state laws.

With the denial of review by the Supreme Court, the decision of the Ninth Circuit effectively ends the question of whether federal reserved rights may extend to groundwater resources in the affirmative. While it is possible that another appellate circuit could disagree and force resolution by the Supreme Court, that appears unlikely. Thus, the decision represents a significant victory for Indian and other federal reservations across the United States.

Within California, the decision means that CVWD and DWA may have less groundwater to allocate between themselves and other users in the Coachella Valley Basin. As those agencies seek to comply with the Sustainable Groundwater Management Act of 2014, they will need to decrease their use of groundwater from the Basin, increase recharge with imported supplies or both. While the Tribe’s reserved rights will be quantified in a future phase of the litigation, the decision of the Ninth Circuit can be expected to result in greater need for imported water supplies by CVWD and DWA. That will increase demands for water from the state’s water conveyance infrastructures, including those which transport water from the Colorado and Sacramento Rivers. Thus, it was not surprising that CVWD approved its participation in the California WaterFix by a board action on October 10, 2017.

Given the interconnected nature of California’s water system, pressures in one Basin often create ripple effects across the state. Those effects can be negative, in that deficits in one area can lead to higher prices in other areas or, if prices are not allowed to operate effectively, shortages. Those effects can also be positive, in that the state can resolve local water deficits on a statewide level, especially during wetter years.

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Arizona Supreme Court Clarifies Water Transfer Rules

The Arizona Supreme Court has issued an important decision regarding water transfers and who may participate as an “interested party” in administrative proceedings before the Arizona Department of Water Resources (ADWR). The decision was issued on November 12, 2015 in the case of Arizona Department of Water Resources v. McClennen, No. CV-15-0223-SA, which is a dispute between Freeport Minerals Corporation and officials within Mohave County over water on Planet Ranch. That ranch has been the subject of multiple water transfer proposals since the 1980s, and for a time was owned by the City of Scottsdale for that purpose, before it was sold to Freeport in 2008.

In 2010, Freeport filed applications with ADWR to transfer surface water rights that had historically been used on Planet Ranch in Mohave County for use at the Bagdad Mining Complex in Yavapai County, which is adjacent to Mohave County on the east. A portion of the water rights would also be used within Mohave County to support the Lower Colorado River Multi-Species Conservation Program. Mohave County filed objections with ADWR, alleging that the transfer might negatively affect residents of the County and would be against the public interest.

ADWR rejected the County’s objections, concluding that Mohave County had no standing to participate in the proceeding since it did not hold any water rights or other interest that is protected under the water transfers statute, found in Arizona Revised Statutes § 45-172. The County appealed that ruling, which led to last week’s decision by the Supreme Court.

The court held that § 45-172 allows ADWR to consider a limited set of factors when determining whether to approve a transfer of surface water rights. The statute requires that the water rights proposed for transfer “shall have been lawfully perfected … and shall not have thereafter been forfeited or abandoned,” and “vested or existing rights to the use of water shall not be affected, infringed upon, nor interfered with” by the transfer. Mohave County did not allege any violation of those standards by the proposed transfer from Planet Ranch, and did not hold any vested water rights itself. Therefore, the court held that the County had not raised any arguments that needed to be considered by ADWR, and the agency did not need to allow the County to participate in the proceeding.

Mohave County argued that a water transfer should be subject to a discretionary public interest test, like that imposed on new appropriations of water. Arizona Revised Statutes § 45-153 allows ADWR to reject a proposed appropriation if the use would be “against the interests and welfare of the public.” The Supreme Court held, however, that the public interest test only applies to new appropriations of water and not to water transfers, since that language appears nowhere in § 45-172. That is consistent with the concept that water rights, once formed, are property rights that can be used or transferred by the owner without ongoing oversight from ADWR, as long as the use does not infringe on the rights of other water users.

The Supreme Court used the factors to be considered by ADWR as the basis for interpreting who may be an “interested person” that can file objections against a water transfer. The term is not defined in the statute, so the court looked to the purpose of objections. The court held that in this context, the phrase “interested person” should mean a person who has an interest protected by § 45-172, i.e., an owner of a vested water right that could be affected by the transfer. Since the County did not fall within that definition, the court ruled that the County had no standing to file an objection, and ADWR was correct in rejecting its participation.

In essence, Mojave County objected to the Planet Ranch water transfer based on the general interest of its citizens, rather than any special interest in the water rights at issue. Water in Arizona is owned and allocated by the state through ADWR, and the Supreme Court denied the attempt by Mohave County to insert itself into that process without a demonstrable interest in water rights. The decision is favorable for water rights holders, since it rejected the argument that ADWR should apply a public interest test to all water transfers. Instead, the Supreme Court affirmed that once an initial appropriation has been made, the resulting water rights constitute legal entitlements that can be freely used and transferred by the owner, in the absence of concrete harm to other water users.

Of course, whether opposing the water transfer would actually be in the interest of Mojave County citizens is debatable, but the political process resulted in County elected officials determining that they should object to the transfer. The Supreme Court’s decision represents a victory of water law over politics, at least temporarily in this matter. Water management often comes down to popular opinions and politics in its most base form, so it is refreshing to see a court applying the law objectively, rather than trying to divine the political currents.

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Dark Clouds Over California: The Sustainable Groundwater Management Act of 2014

I am excited to release a new white paper regarding the California Sustainable Groundwater Management Act of 2014, entitled Dark Clouds Over California. Please download the white paper and share with your colleagues. For your convenience, the executive summary is published below. Additionally, the Act is spread across three legislative bills, some of which modify each other, making them difficult to read. A compiled version of the Act is available here. Other provisions of the three bills that are not contained within the main body of the Act may be found here.

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The California Water Market 2014

There has been no shortage of news articles on the California drought this year. Many have helped inform the public about critical issues related to the conservation and development of water resources in the state, and about changes or potential changes in the laws and regulations concerning urban water use and groundwater. There have also been a number that focus on the existence of and increased activity in a market for water rights and supplies, including this article from today in Bloomberg.

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The California Water Action Plan of 2014

On January 27, 2014, Governor Brown released a California Water Action Plan (CWAP) to address the ongoing drought and long-term challenges such as environmental protection, population growth and climate change. While the document was released several months ago, the implementation actions are only now starting to be clarified, especially regarding groundwater. This post reviews that document and evaluates the various actions identified in the CWAP from the perspective of a legal practitioner.