June 18, 2014

Washington Supreme Court Acts to Limit Acquisition of New Water Rights


This past fall, the Washington State Supreme Court entered a decision that set a high bar for the establishment of new water uses in otherwise over-appropriated river systems.  In Swinomish Indian Tribal Community v. Washington Department of Ecology (“Swinomish”), the Washington State Supreme Court struck down a Department of Ecology (“Ecology”) rule that authorized development of additional new water uses in the over-appropriated Skagit River Basin.  The court concluded that the agency had exceeded its statutory authority by failing to properly ensure the maintenance of established minimum instream flows.  Such a decision significantly affects not only those new development projects in the basin based on the now stricken rule, but how minimum flow obligations will be met in other basins throughout the state. 




Under the state water code, the legislature has required that base water flows be retained in rivers and streams throughout the state as “necessary to provide for preservation of wildlife, fish, scenic, aesthetic and other environmental values, and navigational values.”  The legislature also made it clear that such a mandate was not to be construed as an absolute, acknowledging that circumstances could arise where strict adherence to minimum flows may not always be in the public interest.  To this effect, the legislature specifically stated, “[w]ithdrawals of water which would conflict [with the minimum base flow mandate] shall be authorized only in those situations where it is clear that overriding considerations of the public interest will be served.”  It would be the manner in which Ecology relied on this “overriding considerations of the public interest” exception (commonly referred to as the “OCPI”) as the basis for issuing amendments to existing instream flow rules in 2006 that would lead to the Washington Supreme Court’s adverse decision in Swinomish


Ecology’s Amended Rule and Case History


Ecology is authorized to set minimum instream flows to protect fish and wildlife, recreational and aesthetic values, and water quality.  In 2001, Ecology issued administrative rules governing water uses within the Skagit River Basin.  These rules included the establishment of minimum instream flow requirements (the “Instream Flow Rule”).  While setting minimum flow standards for the basin, the rules did not set aside any amount of water as may be needed for future year-round, non-interruptible uses (such as municipal or domestic, for example).   The rules thus required curtailment of new appropriations of water if, and when, instream flows had been reduced to or below the prescribed minimum levels. 


Skagit County opposed the rule, arguing that it would preclude new development of any kind that required a year-round water supply and, in 2003, filed suit challenging the implementation of the Instream Flow Rule.  After three years of negotiations, the county and Ecology reached a settlement in May 2006, resulting in the dismissal of the suit.  Concurrent with the execution of the settlement agreement, Ecology issued an amended rule that did not change the minimum flow levels required under the 2001 Instream Flow Rule, but did authorize certain new uses to occur free from curtailment even when such minimum flows were not being met (the “Amended Rule”). 


Ecology’s Amended Rule authorized 25 separate “limited reservations” of water for “domestic supply, commercial/industrial supply, municipal supply, stock watering and agricultural irrigation.”  In issuing the water reservations, Ecology determined that it had “weighed the public interest supported by providing a limited amount of water for [the newly authorized uses] with the potential for negative impact to instream resources[,]” and that “the public interest advanced by these limited reservations clearly overrides the potential for negative impacts on instream resources.”  Ecology further stated in the rule that the limited nature of the water reservations was critical to its finding that the public interest outweighed the negative impacts.  Ecology would later allege during litigation that both its own biologists and those of the Washington Department of Fish and Wildlife had determined the amount of water allocated for the new uses represented less than the amount that would result in significant adverse impacts to fish populations.  Lastly, Ecology included a provision specifically reserving the authority to reject an application for a new water use under the reservations if new information became available that “reflect upon or alter its current findings of availability, beneficial use, impairment, and/or public interest.” 


In June 2008, the Swinomish Indian Tribal Community (the “Tribe”) filed suit seeking judicial review to challenge the validity of the Amended Rule on numerous grounds.  The trial court denied review and the Tribe appealed.  On appeal, the Tribe argued that Ecology had exceeded its statutory authority by using the OCPI exception to reserve water for new appropriations that would impair senior instream flow rights.  More specifically, the Tribe argued that:  (1)  Ecology relied on a cost-benefit analysis in which the value of instream flow rights is measured in economic terms only, and in which water appropriations for any beneficial use can outweigh such rights;  (2)  the estimated benefits of most of the new water appropriations are less than the economic costs of impairing the instream flow rights;  (3)  the authorized categories of new water appropriations include individual appropriations that do not clearly serve overriding considerations of the public interest; and  (4)  the new appropriations include appropriations for uses that can be served by alternative sources of supply that would not impair instream flow rights. 


The Swinomish Decision


At the outset, the court determined that the validity of the Amended Rule would ultimately depend on whether Ecology had correctly interpreted and implemented the OCPI exception.  The court ultimately held that Ecology did not, stating, “We conclude that Ecology has erroneously interpreted the statutory exception as broad authority to reallocate water for new beneficial uses when the requirements for appropriating water for these uses otherwise cannot be met.”  In reaching this conclusion, the court emphasized from prior holdings that “exceptions to statutory provisions are to be narrowly construed in order to give effect to legislative intent underlying the general provisions,” and that, contrary to Ecology’s construction of the OCPI, the exception is narrow and “not a device for wide-ranging reweighing or reallocations of water through water reservations for numerous other beneficial uses.”


The Statutory Scheme Governing the Administration of Water and Water Rights


Having determined that Ecology construed the exception too broadly with respect to the ability to impair minimum instream flows, the court additionally held the Amended Rule conflicted with the overall statutory scheme of Washington water law.  Confirming that reservations of water under RCW 90.54.050 constitute appropriations of water, the court held that any resulting applications for water use under the rule must then satisfy the same requirements of any other new appropriation.  The court reminded Ecology that, prior to any such approval, it must find:  (1)  that water is available,  (2)  that it will be applied for beneficial use, and that  (3)  the new appropriation will not impair existing water rights, or  (4)  be detrimental to the public welfare.  The court then explained that with any new application submitted under the Amended Rule, at least two of these requirements – that water is available, and such an appropriation would not injure existing water rights – could not be met, thereby requiring denial.  Ecology of course reasoned that this, in part, was exactly why they relied on the OCPI exception:   to provide a limited opportunity to develop beneficial new uses under limited water supply conditions due to the hard floor set by the minimum flows.  The court, unwilling to allow even as small an allocation of water as Ecology had developed under the exception, disagreed, stating that the OCPI was never intended as an alternative method for appropriating water when the base requirements for completing new appropriations of water could not be met.


In addition, the court found Ecology’s attempt to aggregate many individual future uses together in an overall water reservation also ran afoul of the requirements for new appropriations discussed above.  Highlighting again that the law does not allow for impairment of existing water rights, the court discounted the water reservations as individual private uses with little overall public benefit and that whether they were viewed individually, or together, they could not be relieved of the fundamental obligation to not injure existing minimum flow rights. 


The Scope of Ecology’s Discretionary Authority


The court also agreed with the Tribe’s contention that Ecology used the OCPI as a broad grant of authority to reallocate water use.  As Ecology had stressed throughout the proceedings, the amount of water that it allocated to new uses was relatively small. Such an allocation was therefore consistent with the legislature’s intent that the exception not be used as an opportunity to simply reallocate water, but only under limited circumstances in a situation where water supply was so constrained.  The court again disagreed, casting aside Ecology’s appreciation for the limited size of the water reservations.  The court characterized the Amended Rule as an attempt by Ecology to expand its authority beyond that afforded by the statutes which were designed to protect minimum flows.  Focusing on Ecology’s position that an overriding public interest existed to ensure year-round water supplies that currently do not exist for rural homes and other development, the court flatly disagreed, stating, “[W]e do not believe that the legislature has extended broad authority [under the OCPI exception] to make this development possible through water reservations that reallocate water presently allocated for minimum stream flows.”



Reducing Ecology’s Approach to an Economic Balancing Test


Regarding the Tribe’s allegation that Ecology’s interpretation of the OCPI gave too much weight to economic gains that would be derived from the water reservations, the court equally found that Ecology’s emphasis on achieving such benefits was misplaced.  While acknowledging that achieving economic gains in the allocation of available water is a broad goal under the water law statutes, the court defined the question as one of “whether potential economic gains can justify impairment of existing rights resulting from reallocation of water to other beneficial use.”  In characterizing Ecology’s balancing test with respect to the resultant impact that might occur to instream flows, the court found that Ecology’s weighing of the divergent interests “seems principally focused on [beneficial] economic impact from the development that the water reservations are intended to encourage.”  The court held that existing statutes require future allocations of water to maximize net benefits from both diversionary and instream uses, for the people of the state as a whole, and that such an obligation cannot be met by achieving economic benefits alone.  


The Dissenting Opinion


            While the dissent largely agreed with the majority that the Amended Rule represented an invalid expansion of the OCPI exception, it struggled with its seemingly inflexible position that simply because minimum flow rights are considered to be vested water rights, the OCPI exception as a matter of course does not apply.  The dissent challenged the majority’s opinion, arguing that “the fact that minimum flows constitute vested appropriations of water does not make them immutable.”  By highlighting the fact that the court has recognized in prior decisions that Ecology may impinge on then-existing rights in the course of setting minimum flows, the dissent offered that so long as “minimum flows are to be treated as any other prior appropriation, then it stands to reason that Ecology may impinge on minimum flows by rule in some circumstances.”  When addressing the interpretation of the OCPI itself, the dissent found that under the majority’s interpretation, Ecology’s authority must be necessarily limited to only increase minimum flows because there would be so few instances in which Ecology could decrease such allocations. 


            In addition, the dissent took issue with the majority’s characterization of the water reservations as being merely a matter of economic benefit.  Challenging the majority’s argument that Ecology may not categorically rely on cost-benefit analysis in considering the OCPI exception for fear that demands for potable water will necessarily prevail over the protection of environmental values, the dissent dismissed such a concern as misplaced under the circumstances.  Claiming that no party to the proceedings had called for such an inflexible test, the dissent argued “[t]his is not simply a case where the benefits are greater than the costs, but where the benefits of the 1.5 cubic feet per second (“cfs”) water reservation in particular is significant and the costs are close to nothing.”  When considering the fact that the 1.5 cfs reservation for rural public water systems and exempt wells would bring significant value to underserved users at a nominal cost to fish and other ecological values, the dissent wondered that if such a ratio was not sufficient to override the impact on minimum flows, what would.  Hence, the dissent recommended that the case be remanded to Ecology to analyze the impact of the 1.5 cfs reservation and to determine whether the resulting benefits to be produced to the public interest would override the harm to affected fish populations.


Future Considerations


            The impacts of the decision are already being felt, as it has been estimated that the water rights in the basin of no less than 475 homes and eight businesses have been deemed invalid.  Fortunately, Ecology has shown a willingness to be flexible in how it exercises enforcement as it attempts to avoid immediate action against affected users who had relied on the water reservations for their water supply.  Such an approach, however, while appropriate now, may not bode well for later in the year when flows begin to diminish.  Clearly, sources of water will need to be secured to mitigate the impacts of existing uses in the basin.  These options are apt to be limited and, in the immediate term, will require the acquisition of more senior water rights to offset any existing out-of-priority depletions.  Longer term, Ecology and affected stakeholders will need to evaluate the potential for securing additional storage capacity within affected basins.  The completion of such facilities would require significant amounts of time and money.


            Finally, and most importantly, a hard look needs to be taken at the existing rules in all basins that stand to be affected by this decision.  Notably, this process has already begun in the Dungeness Basin.  The Olympic Resource Protection Counsel (“ORPC”) recently filed a petition seeking amendments to the applicable water management rules.  In filing the petition, ORPC seeks to engage Ecology and other stakeholders to craft balanced, lawful, and effective water management regulation within the basin.  


Note: Subsequent to the publishing of this article, on March 18, 2014, Ecology issued a decision letter refusing ORPC’s request to initiate a rulemaking to amend the existing minimum flow and related standards governing the Dungeness basin.  While alleging that some of the legal authority ORPC relied on as grounds for reevaluating the existing rule was misplaced, Ecology also challenged OPRC’s position that the flow analysis provided as the basis for the existing minimum flow standards could no longer be presumed as accurate.  Specifically, Ecology claimed that the existing regulatory instream flow minimums “represent ecologically-based minimum flows necessary to protect and preserve fish populations, . . . and other instream resources.”  Hence, although in its decision Ecology also indicated a willingness to create more certainty around water availability in consideration of existing and future demand, it appears such a commitment will not reconsider the department’s existing flow data.  Whether affected user interests within the basin choose to pursue such an analysis on their own and whether such findings, even if favorable to their cause, could justify reopening the basin rules for amendment, will remain to be seen. 


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