July 28, 2014

Oregon Supreme Court to Decide Municipal Water Rights Case


This past winter, in WaterWatch v. Water Resources Department, the Oregon Court of Appeals reversed an Oregon Water Resources Department (“OWRD”) order granting a municipal water permit extension to the City of Cottage Grove.  With the reversal, the Court of Appeals also ordered OWRD to withdraw the City’s water right certificate it had received under the extension.  In April, the Oregon Supreme Court granted review of the Court of Appeals’ decision. 


If ultimately upheld, the decision could significantly affect the City’s ability to perfect its municipal water rights to the full extent originally authorized in its existing permits.  This is because any new permit extension granted by OWRD will likely contain additional conditions to protect listed fish species that will limit when or how much water the City may ultimately divert. 


The imposition of such restrictions are not apt to be limited to just Cottage Grove, as there are many other municipalities that possess water permits that could suffer a similar fate.  Municipalities possessing water permits for which application extensions are pending should determine whether those permits could be affected by an affirming decision from the Oregon Supreme Court, and if so, what their contingency plans will be.


Municipal Water Law Overview


A municipality must obtain a water right permit from OWRD before it can divert and use surface water or groundwater.  Once the municipality receives a permit, it has 20 years to complete construction of the facilities necessary to divert and use the water for the authorized uses (known as “perfection” of the right).  Once the municipality submits evidence showing the water has been used in compliance with permit conditions, OWRD issues a water right certificate and the municipality then has a vested water right. 


Given a variety of factors beyond the municipality’s control (e.g., funding capabilities, unanticipated levels of water demand, changes in applicable government regulations, etc.), municipalities often have difficulty completing construction of water works within 20 years.  For this reason, a municipality typically seeks an extension of time to perfect its water right permit.    

OWRD may grant an extension of time to a municipal use permit holder to complete construction or to perfect its water right for good cause, provided that “the holder may divert water beyond the maximum rate diverted for beneficial use before the extension only upon approval by the department of a water management and conservation plan.”   State law requires, however, that “[f]or the first extension issued after June 29, 2005 for a permit for municipal use issued before November 2, 1998, the department must find that the undeveloped portion of the permit is conditioned to maintain the persistence of [protected] fish species.”  The central issue in the Cottage Grove case is whether OWRD incorrectly determined that these requirements do not apply to Cottage Grove’s permit extension application.


Case Summary


In November 1977, the City of Cottage Grove obtained a water right permit authorizing the diversion of 6.2 cubic feet per second (cfs) of water from the Row River for municipal use.  The permit required all water works to be constructed by October 1, 1979 and the water applied to beneficial use on or before October 1, 1980.  Thereafter, the City obtained permit extensions necessary to complete construction, the last of which expired in October of 1999.  However, due to a prolonged rulemaking process involving OWRD’s future ability to grant water permit extensions, OWRD did not require the City to obtain a new extension until after the new rules became effective in late 2005. 


In December 2007, after having substantially completed construction of its water works, the City submitted its application for extension of time.  In May 2008, the City modified its diversion structure to allow diversion of the full 6.2 cfs authorized under its permit.  In early 2008, OWRD granted the City’s request to place its extension application on administrative hold and approximately six months later the City diverted 6.2 cfs of water into its water works to apply its full amount of water to beneficial use.  On August 4, 2008, the City requested the administrative hold be lifted and 15 days later OWRD issued a proposed final order granting the City an extension of time to October 1, 2013 to complete its water works and to apply the water to beneficial use consistent with the permit.  


The environmental advocacy group WaterWatch of Oregon challenged the proposed order. Following a hearing in late 2009, an administrative law judge (“ALJ”) affirmed OWRD’s grant of the extension.  The ALJ concluded that because the full 6.2 cfs of water was applied to beneficial use, no portion of the permit remained to be perfected and therefore no basis existed under state law requiring the preparation of a Water Management and Conservation Plan or conditioning the extension to maintain the “persistence of [protected] fish species.”  In September 2010, OWRD issued a final order adopting the ALJ’s decision.  Approximately one month later, OWRD issued a water right certificate confirming the City’s perfection of its water right to the full extent authorized under its permit. 


Although it did not challenge the issuance of the certificate, in November 2010, WaterWatch petitioned the Court of Appeals for judicial review of OWRD’s final order.  On appeal, petitioners argued that, under state law, any portion of water not applied to beneficial use prior to the expiration of the City’s permit or any extension thereof, may not be later perfected until a permit holder receives an extension that includes conditions requiring: (a) OWRD approval of a Water Management and Conservation Plan; and (b) because the original permit was issued before November 2, 1998, a condition to maintain the persistence of protected fish species.  OWRD and the City alleged that water may be applied to beneficial use following the expiration of a permit so long as an extension amending that deadline is approved prior to the permitee’s submittal of final proof confirming the perfection of its water right. 


The Court of Appeals agreed with petitioner’s interpretation of state law, stating that OWRD’s interpretation would allow “municipalities to circumvent the requirements for fish protection and approval of a water management and conservation plan simply by completing construction and applying the full amount of water allowed under the permit to the use before applying for an extension of the permit.”   The Court reversed the final order granting the extension and sent the case back down to OWRD, ordering it to withdraw the water right certificate and reconsider the City’s extension application consistent with the Court’s interpretation of the state law governing the issuance of water permit extensions to municipalities. 


Absent a substantive reversal of the Court of Appeals’ decision or a legislative fix, once this matter is sent back down to OWRD, any resulting extension granted to the City will include conditions for the protection of listed fish species.  Once imposed, such conditions could materially affect the City’s ability to divert much of the water it had previously intended to develop under its water permits. This result would likely be replicated across a number of municipal permit extension applications now pending before OWRD. As a result, municipalities holding those permits should consider the potential impacts of this case and how it may impact their ability to appropriate water to the full extent provided under their existing water permits. 


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