Opinion ID: 2600424
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Heading Rank: 3

Heading: Anti-Speculation and Beneficial Use

Text: Water is a public resource. The water of every natural stream, including tributary groundwater, is the property of the public, subject to appropriation. [5] Colo. Const. art. XVI, § 5. Thus, surface and tributary groundwater is dedicated by Colorado's constitution and statutes to appropriation for beneficial use by public agencies and private persons in order of their adjudicated priorities. High Plains A & M, LLC v. Se. Colo. Water Conservancy Dist., 120 P.3d 710, 718 (Colo.2005). Colorado's system of public ownership of water, combined with the creation of public and private use rights therein by appropriation, circumscribes monopolist pitfalls. When the beneficial use requirement was put into practice in the nineteenth century, its fundamental purpose was to establish the means for making the public's water resource available to those who had the actual need for water, in order to curb speculative hoarding. David B. Schorr, Appropriation as Agrarianism: Distributive Justice in the Creation of Property Rights, 33 Ecol. L.Q. 3, 9, 22 (2005). Colorado water law continues to fill this role today, through its requirements for optimum beneficial use, efficient water management, and priority administration. Empire Lodge Homeowners' Ass'n v. Moyer, 39 P.3d 1139, 1146-47 (Colo.2001). The public's water resource is subject to maximum utilization, a doctrine intended to make water available for as many decreed uses as there is available supply. § 37-92-102(1)(a), C.R.S. (2007); Farmers Reservoir & Irrigation Co. v. City of Golden, 44 P.3d 241, 245 (Colo.2002); see also § 37-92-501(2)(e), C.R.S.(2007). Within the priority system, maximum utilization spreads the benefit of the public's water resources to as many uses as possible, within the limits of the physically available water supply, the constraints of interstate water compacts, and the requirements of United States Supreme Court equitable apportionment decrees. In turn, the objective of maximum use administration, under the prior appropriation system, is to achieve optimum use in every appropriator's utilization of the water. § 37-92-501(2)(e) ([A]ll rules and regulations shall have as their objective the optimum use of water consistent with preservation of the priority system of water rights.). Maximum utilization does not mean that every ounce of Colorado's natural stream water ought to be appropriated; optimum use can be achieved only through proper regard for all significant factors, including environmental and economic concerns. See Alamosa-La Jara Water Users Prot. Ass'n v. Gould, 674 P.2d 914, 935 (Colo.1983). Neither a private nor a governmental agency may obtain a right to use a portion of the public's water resource unless it establishes intent to make a non-speculative appropriation. See Vought v. Stucker Mesa Domestic Pipeline Co., 76 P.3d 906, 912 (Colo.2003). Once an appropriator makes an actual beneficial use, it holds a vested property right of use protected by constitutional guarantees. Empire Lodge, 39 P.3d at 1147; Strickler v. City of Colo. Springs, 16 Colo. 61, 70, 26 P. 313, 316 (1891). Colorado's system for decreeing conditional appropriations encourages beneficial use by antedating the priority of a water right, but only to the extent of the actual beneficial use that subsequently occurs. Dallas Creek Water Co. v. Huey, 933 P.2d 27, 35 (Colo. 1997). This makes public and private projects possible by giving appropriators the time and certainty necessary to obtain and complete engineering, financing, and construction of the necessary works for capturing, possessing, and controlling water for beneficial use in the completion of an appropriation. Public Serv. Co. of Colo. v. Blue River Irrigation Co., 753 P.2d 737, 739 (Colo. 1988). A conditional water right is a right to perfect a water right with a certain priority upon the completion with reasonable diligence of the appropriation upon which such water right is to be based. § 37-92-103(6). To obtain a conditional water right, an applicant must demonstrate that: (1) it has taken a first step, which includes an intent to appropriate the water and an overt act manifesting such intent; (2) its intent is not based on a speculative sale or transfer of the water to be appropriated; and (3) there is a substantial probability that the applicant can and will complete the appropriation with diligence and within a reasonable time. Bijou, 926 P.2d at 31. For an applicant to satisfy the first step, he or she must meet the burden of demonstrating intent to appropriate the water for beneficial use. Id. at 36; City of Aspen v. Colo. River Water Conservation Dist., 696 P.2d 758, 761 (Colo.1985). This requirement is the basis of the anti-speculation doctrine. See Bijou, 926 P.2d at 37. [6] For a private entity to meet its intent burden, it must have contractual commitments for any appropriations that are not planned for its own use, or the application will fail as unduly speculative. Colo. River Water Conservation Dist. v. Vidler Tunnel Water Co., 197 Colo. 413, 415-16, 594 P.2d 566, 568-69 (1979). On the other hand, a governmental water supply agency has a unique need for planning flexibility because it must plan for the reasonably anticipated water needs of its populace, taking into account a normal increase in population. City & County of Denver v. N. Colo. Water Conservancy Dist., 130 Colo. 375, 384, 276 P.2d 992, 997 (1954); City & County of Denver v. Sheriff, 105 Colo. 193, 202, 96 P.2d 836, 841 (1939). Thus, Colorado's 1969 Act defines appropriation in a manner that differentiates private appropriators from governmental agency appropriators. Section 37-92-103 states: (3)(a) Appropriation means the application of a specified portion of the waters of the state to a beneficial use pursuant to the procedures prescribed by law; but no appropriation of water, either absolute or conditional, shall be held to occur when the proposed appropriation is based upon the speculative sale or transfer of the appropriative rights to persons not parties to the proposed appropriation, as evidenced by either of the following: (I) The purported appropriator of record does not have either a legally vested interest or a reasonable expectation of procuring such interest in the lands or facilities to be served by such appropriation, unless such appropriator is a governmental agency or an agent in fact for the persons proposed to be benefited by such appropriation. (II) The purported appropriator of record does not have a specific plan and intent to divert, store, or otherwise capture, possess, and control a specific quantity of water for specific beneficial uses. (emphasis added). As we explained in Bijou, the statute excuses governmental agencies from the requirement to have a legally vested interest in the lands or facilities served, but the exception does not completely immunize municipal applicants from speculation challenges. 926 P.2d at 38. A governmental agency need not be certain of its future water needs; it may conditionally appropriate water to satisfy a projected normal increase in population within a reasonable planning period. The governmental agency does not have carte blanche to appropriate water for speculative purposes; in effect, the statute provides for a limited exception from certain requirements otherwise applicable to private appropriators. Public agencies must still substantiate a non-speculative intent to appropriate unappropriated water, and they must have a specific plan and intent to divert, store, or otherwise capture, possess, and control a specific quantity of water for specific beneficial uses. § 37-92-103(3)(a)(II). Accordingly, the governmental agency has the burden to demonstrate that its conditional appropriation is not speculative. Bijou, 926 P.2d at 39. The conditional appropriation must be consistent with the governmental agency's reasonably anticipated water requirements based on substantiated projections of future growth within its service area. Thus, under section 37-92-103(3)(a), a municipality may be decreed conditional water rights based solely on its projected future needs, and without firm contractual commitments or agency relationships, but a municipality's entitlement to such a decree is subject to the water court's determination that the amount conditionally appropriated is consistent with the municipality's reasonably anticipated requirements based on substantiated projections of future growth. Id. (emphasis added). The conditional appropriation must not be based on a conjectural population projection that becomes a self-fulfilling prophecy of growth. Most front range municipalities in Colorado could conjecture growth in the next few decades at exponential rates. To some extent, that growth is directly related to the ability of the municipality to supply water. Hence, the projection becomes a self-fulfilling prophecy if the municipality secures a right to the water necessary to sustain the growth. We do not view such conjecture as sufficient substantiation to support a conditional decree for water. Municipalities must do more than represent to the water court that if they had water, they would be able to grow. Id. at 39 n. 25. Only a reasonable planning period for the conditional appropriation is allowed. In Bijou, the water court's findings of fact addressed what constitutes a reasonable water supply planning period, fifty years in that case, and found the existence of substantiated population and water use projections. Id. at 42. The judgment and decree we upheld also included sufficient reality checks for the purpose of ensuring in subsequent diligence proceedings that the appropriator will utilize the newly appropriated rights for its own purposes and does not become a permanent lessor or wholesaler of water yielded by these rights. Id. at 50 n. 40. We also determined in Bijou that use of a volumetric limitation in a conditional decree, rather than a flow rate standard, curbs the otherwise speculative tendency of a lengthy conditional appropriation period. Id. Requiring adjusted, realistic estimates of future need in subsequent diligence proceedings is consistent with the purpose underlying both the anti-speculation doctrine and the diligence requirement, i.e., preserving unappropriated water for future users having legitimate, documented needs. Id. at 51. [7] In addition to demonstrating non-speculative intent, a governmental agency must satisfy the can and will requirement in order to obtain a conditional decree. Section 37-92-305(9)(b) provides: No claim for a conditional water right may be recognized or a decree therefor granted except to the extent that it is established that the waters can and will be diverted, stored, or otherwise captured, possessed, and controlled and will be beneficially used and that the project can and will be completed with diligence and within a reasonable time. The anti-speculation and the can and will requirements are closely related. A conditional decree applicant cannot reasonably prove that its project can and will be completed with diligence and within a reasonable time if it lacks the requisite nonspeculative intent. City of Black Hawk v. City of Central, 97 P.3d 951, 956-57 (Colo. 2004). The factors a court considers under the can and will requirement in diligence proceedings include, but are not limited to: 1) economic feasibility; 2) status of requisite permit applications and other required governmental approvals; 3) expenditures made to develop the appropriation; 4) ongoing conduct of engineering and environmental studies; 5) design and construction of facilities; and 6) nature and extent of land holdings and contracts demonstrating the water demand and beneficial uses which the conditional right is to serve when perfected. See Dallas Creek, 933 P.2d at 36. The purpose of the diligence proceeding is to gauge whether the conditional appropriator is making steady progress in putting the water to beneficial use with diligence and within a reasonable period of time. Id. The reason for continued scrutiny of the conditional appropriation through diligence proceedings is to prevent the hoarding of priorities to the detriment of those seeking to use the water beneficially. Id. The effect of a long-term conditional right is to preclude other appropriators from securing an antedated priority that will justify their investment. See generally Natural Energy Res. Co. v. Upper Gunnison River Water Conservancy Dist., 142 P.3d 1265, 1277 (Colo.2006). Those in line behind a conditional appropriation for a long planning period risk losing any investment they may make in the hope that the prior conditional appropriation will fail. They also may not be able to raise the necessary funds in the first instance that will enable them to proceed, in light of their subordinated status. Those who obtain a priority date junior to the antedated priority and proceed to put the water to beneficial use must involve themselves in a continued expensive struggle throughout numerous six year diligence periods to knock out all or part of the antedated conditional appropriation, in order to protect their appropriations. The General Assembly's intent is to prevent decreed conditional appropriations from accumulating to the detriment of those whose priority will be advanced by cancellation of the senior conditional priority in whole or part, or those who might proceed to initiate a new or enlarged appropriation. Dallas Creek, 933 P.2d at 37-38, 42. Thus, in the design of water law, the essential function of the water court in a conditional decree proceeding is to determine the amount of available water for which the applicant has established both a need and a future intent and ability to actually use. Bijou, 926 P.2d at 47. As a prerequisite, the applicant has the burden of demonstrating a nonspeculative intent to put the water to beneficial use and, under the can and will test, a substantial probability that its intended appropriation will reach fruition. Id. at 42.