Privatization of the Water Resource: Salvage, Leases and Change

Stone, Albert W.

English

University of Montana

Montana Law Review Volume 54 Issue 1 Winter 1993 Article 6 January 1993 Privatization of the Water Resource: Salvage, Leases and Changes Albert W. Stone Professor of Law, University of Montana Follow this and additional works at: https://scholarworks.umt.edu/mlr  Part of the Law Commons Let us know how access to this document benefits you. Recommended Citation Albert W. Stone, Privatization of the Water Resource: Salvage, Leases and Changes, 54 Mont. L. Rev. (1993). Available at: https://scholarworks.umt.edu/mlr/vol54/iss1/6 This Article is brought to you for free and open access by ScholarWorks at University of Montana. It has been accepted for inclusion in Montana Law Review by an authorized editor of ScholarWorks at University of Montana. For more information, please contact scholarworks@mso.umt.edu. PRIVATIZATION OF THE WATER RESOURCE:SALVAGE, LEASES AND CHANGES*Albert W. Stone**The 1991 biennial legislative session made two substantial pol-icy changes to Montana water law: (1) The legislature enactedChapter 308 which provides an incentive to salvage water by theuse of water-saving methods; and (2) the legislature enacted Chap-ter 435 which allows temporary or intermittent changes and reallo-cation of water. This essay discusses these enactments, and thesubstantial changes in policy that they effect.Chapter 308, codified at section 85-2-419 of the Montana Codestates:It is the declared policy of the state in 85-1-102 to encourage theconservation and full use of water. Consistent with this policy,holders of appropriation rights who salvage water, as defined in85-2-102, may retain the right to the salvaged water for benefi-cial use. Any use of the right to salvaged water for any purpose orin any place other than that associated with the original appropri-ation right must be approved by the department as a change inappropriation right in accordance with 85-2-402. Sale of the sal-vaged water must also be in accordance with 85-2-403, and thelease of the right to salvaged water for instream flow purposesmust be in accordance with 85-2-436.1In Montana, as elsewhere, waters have been notoriously over-ap-propriated. Claims and decrees have resulted in paper recordrights to more water than many of the appropriators ever put to abeneficial use.2 These errors may be perpetuated by the decrees inthe current statewide adjudication process. 3* Copyright retained by the author.** Professor of Law Emeritus, University of Montana; B.A. University of California,Berkeley, 1943; J.D. Duke University Law School, 1948.1. MONT. CODE ANN. § 85-2-419 (1991) (emphasis added). Section 85-2-102 of the Mon-tana Code simply contains definitions; as of 1991, section 85-2-102 also includes a definitionof salvage: "'Salvage' means to make water available for beneficial use from an existingvalid appropriation through application of water-saving methods." MONT. CODE ANN. § 85-2-102(14) (1991).Sections 85-2-402 and 403 require approval by the Department of Natural Resourcesand Conservation for any change of purpose, place of use, or ownership. MONT. CODE ANN. §85-2-402 to -403 (1991). Section 85-2-436 authorizes the Department of Fish, Wildlife andParks to lease water for instream flow purposes. MONT. CODE ANN. § 85-2-436 (1991).2. Allen v. Petrick, 69 Mont. 373, 377-78, 222 P. 451, 452-53 (1924).3. Whether these errors will be so perpetuated depends on whether the erroneousclaims are caught DNRC's examination process, or are the subject of a successful objectionby another appropriator.1Stone: Privatization of the Water ResourcePublished by ScholarWorks at University of Montana, 1993MONTANA LAW REVIEWThe traditional rule is that an appropriator may take only theamount of water that is reasonably efficiently needed for the pur-pose of the appropriation. Any excess beyond this need must beleft in the stream for other uses and users.5 "The tendency of re-cent decisions of the courts in arid states is to ... regard the actualbeneficial use, installed within a reasonable time ... as the test ofthe extent of the right."eThe Arizona case of Salt River Valley Users' Ass'n. v.Kovacovich7 illustrates this point. In Kovacovich, the defendantsextended their water use by irrigating additional lands adjacent tothe lands for which they had water right permits.8 They had em-ployed water-saving practices so that "no more water was thusused by defendants to irrigate all of their lands here involved thanwas formerly used upon only their lands with a valid water appro-priation."9 The court said:Beneficial use is the measure and limit to the use of water. (Cita-tion omitted.) The appellees may only appropriate the amount ofwater from the Verde River as may be beneficially used in anygiven year upon the land to which the water is appurtenant eventhough this amount may be less than the maximum amount oftheir appropriation .... Any practice ... whereby appellees mayin fact reduce the quantity of water actually taken inures to thebenefit of other water users and neither creates a right to use thewater saved as a marketable commodity nor the right to applysame to adjacent property .... 1oKovacovich is a particularly strong case for allowing furtheruse of salvaged water because these facts were conceded:"[B]ecause of water-saving practices, no more water was thusused."'1 So Kovacovich did not raise the factual issue of whetherthere was bona fide salvage, or simply the use (or sale or lease) ofmore water because the "right" was in excess of the appropriator'sneeds or historic use.1"4. Brennan v. Jones, 101 Mont. 550, 567, 55 P.2d 697, 702 (1935). See also EnlargedSouth Side Ditch Co. v. John's Flood Ditch Co., 183 P.2d 552, 554 (Colo. 1947).5. Brennan, 101 Mont. at 567, 55 P.2d at 702.6. McDonald v. State, 220 Mont. 519, 529, 722 P.2d 598, 604 (1986) (quoting Conrowv. Huffine, 48 Mont. 437, 138 p. 1094 (1914)).7. 411 P.2d 201 (Ariz. 1966).8. Id. at 202.9. Id.10. Id. at 203-04 (citations omitted).11. Id. at 202.12. See Quigley v. McIntosh, 110 Mont. 495, 505-06, 103 P.2d 1067, 1072 (1940) (deny-ing the extended use of a decreed right: "The mere fact that all the lands to which theadditional use of water has been applied were included within the description in the plead-[Vol. 542Montana Law Review, Vol. 54 [1993], Iss. 1, Art. 6https://scholarworks.umt.edu/mlr/vol54/iss1/61993] PRIVATIZATION OF THE WATER RESOURCE 101In Montana, Quigley v. McIntosh" is an example of an at-tempted extended use of a decreed "right" that was in excess ofthe established beneficial use.14 The Montana Supreme Court de-nied this attempt and followed the traditional rule, explaining:It seems indisputable that a water user who has been decreed theright to use a certain number of inches of water upon lands forwhich a beneficial use has been proven, cannot subsequently ex-tend the use of that water to additional lands not under actual orcontemplated irrigation at the time the right was decreed .... Ofcourse, water must be appropriated and decreed under our systemfor some useful and beneficial purpose. (Citation omitted.) Theproof of the existence of such purpose and the use applied to thesame, as shown in the original cause, of necessity formed the basisfor the awards finally given in the 1913 decree. 5The long-standing policy underlying these decisions character-izes water as a public resource that cannot be owned by individualusers.' The 1972 Montana Constitution provides:All... waters within the boundaries of the state are the propertyof the state for the use of its people and are subject to appropria-tion for beneficial uses as provided by law.17Section 85-2-101(1) of the Montana Code additionally states:[T]he legislature declares that any use of water is a public useand that the waters within the state are the property of the statefor the use of its people and are subject to appropriation for ben-eficial uses as provided in this chapter.'8So it follows that water is a shared resource. After the water hasbeen used for the beneficial public purpose allowed by a permit orings at the time of the decree, in no manner furnishes basis for, or justifies, the extended use.... .in the absence of intent to make such extended use at the time the appropriation wasmade, together with diligent development of the use. See also Conrow v. Huffine, 48 Mont.437, 444-45, 138 P. 1094, 1096 (1914) for similar language.13. 110 Mont. 495, 103 P.2d 1067 (1940).14. Id.15. Id. at 505, 103 P.2d at 1072.16. See, e.g., MONT. CONST. of 1889, art. III, § 15 ("The use of all water ... shall beheld to be a public use."); In Re Yellowstone River Water Rights, 253 Mont. 167, 173, 832P.2d 1210, 1213 (1992) ("[T]he State of Montana owns the underlying fee to all of the waterin the state."); In Re Clark Fork River Drainage, - Mont. -, -, 833 P.2d 1120, 1122(1992) (reiterating that a water right is not a right to possession of a quantity of water, butof its beneficial use); 79 Ranch, Inc. v. Pitsch, 204 Mont. 426, 433, 666 P.2d 215, 218 (1983)("the fundamental policy that a water right does not mean possession of a quantity of water,but its beneficial use").17. MONT. CONST. art. IX, § 3(3).18. MONT. CODE ANN. § 85-2-101(1) (1991).3Stone: Privatization of the Water ResourcePublished by ScholarWorks at University of Montana, 1993MONTANA LAW REVIEWan appropriation,19 the water becomes available for other publicpurposes or for others to make similar use of it.20Pursuant to this policy of water appropriation, water usersmust be reasonably efficient, to conserve this public resource whichthey are privileged to use and to save and provide this public re-source for other users and other uses.21 The state may enforce rea-sonable efficiency pursuant to statutes.22 Of course conservationmay also be voluntarily accomplished by a conscientious or sociallyconscious user.Lately, water marketing has frequently been touted as ameans of accomplishing efficiency of water use and socially desira-ble allocations of water.23 Changes in the purpose, place, and own-ership of a water right have always been with us and have beenregulated to assure that the public resource is used in the publicinterest and without injury to other private interests.2"Section 85-2-419 of the Montana Code goes farther than justallowing changes in water rights, at least as courts have viewedwater rights under prior policy. This statute, by encouraging addi-tional or expanded uses of surplus water that are not necessary forthe purposes for which an appropriation was made, or for which apermit was issued, allows the creation of new water rights withpreexisting earlier priority dates. In this manner the water rightbecomes more than usufructuary, and takes on attributes of owner-ship not only of the right, but also of the water itself, as a privatecommodity rather than as a public resource. Under section 85-2-419, appropriators may market the excess water rather than allowit to remain public property for further private or public interests.Except for public service entities,2 5 Montana historically hasprohibited the leasing or sale of water (as distinguished from saleof a water right).26 This policy stemmed from the underlying policy19. There was no provision for a "permit" prior to 1973.20. Basey v. Gallagher, 87 U.S. 670, 683 (1874).21. Id.22. See MONT. CODE ANN. §§ 85-2-114 to -116 (1991).23. See generally John D. Musick, Reweave the Gordian Knot: Water Futures, WaterMarketing and Western Water Mythology, 35 ROCKY MTN. MIN. L. INST. 22-1 (1990); JohnE. Thorson, Water Marketing in Big Sky Country: An Interim Assessment, 29 NAT. RE-SOURCES J. 479 (1989).24. MONT. CODE ANN. §§ 85-2-402 to -403 (1991). In Re Yellowstone River WaterRights, 253 Mont. at 174, 832 P.2d at 1214 ("These rights . .. are protected against unrea-sonable state action; however, they have not been granted indefeasible status .... [T]heState Legislature may enact constitutionally sound regulations including the requirementfor property owners-to take affirmative actions to maintain their water rights.").25. See Rock Creek Ditch and Flume Co. v. Miller, 93 Mont. 248, 17 P.2d 1074 (1933);Bailey v. Tintinger, 45 Mont. 154, 122 P. 575 (1912).26. See Sherlock v. Greaves, 106 Mont. 206, 76 P.2d 87 (1938); Rock Creek Ditch and102 [Vol. 544Montana Law Review, Vol. 54 [1993], Iss. 1, Art. 6https://scholarworks.umt.edu/mlr/vol54/iss1/61993] PRIVATIZATION OF THE WATER RESOURCE 103that the public, not the appropriator, owns the water.2 "[T]heState of Montana owns the underlying fee to all of the water in theState and thereby retains substantial regulatory power over waterrights.2 In 1991, however, Montana enacted Chapter 435, now sec-tion 85-2-407 of the Montana Code, which compliments section 85-2-419. Section 85-2-407 provides:(1) An appropriator may not make a temporary change in appro-priation right for his use or another's use except with departmentapproval in accordance with 85-2-402 and this section.(2) A temporary change in appropriation right may be approvedfor a period not to exceed 10 years. A temporary change in appro-priation right may be approved for consecutive or intermittentuse.29Although the foregoing does not expressly say that water may nowbe leased in Montana, there seems little, if any, difference betweensuch "temporary" changes and leases.This latest trend favors reallocation through economic deter-minism, treating water simply as a commodity. A person may: (1)"salvage" water and make additional uses of the unneeded water(or lease it for instream flow to the Department of Fish, Wildlifeand Parks);30 or (2) make a "temporary change" of the original ap-propriation; or (3) make a "temporary change" of salvaged waterto other persons, purposes, or places.3 1Western states are seeking better means of water allocation,particularly reallocation. 32 A free market place for water is seduc-tively attractive partly because of its seeming simplicity. But caneconomics-the highest monetary value-be the principal criterionat a time when environmental and intangible human values are in-creasingly pressing for recognition? This raises a policy questionwhich should be considered now, at the outset of these new stat-utes: Should a water right continue to be a usufructuary right orprivilege to use a resource that belongs to the public and in whichthe public has a strong and special interest, or should a water rightFlume Co., 93 Mont. 248, 17 P.2d 1074; Galiger v. McNulty, 80 Mont. 339, 260 P. 401(1927).27. MONT. CONST. art. IX, § 3(3) states: "All ... waters .. . are the property of thestate for the use of its people." MONT. CODE ANN. § 85-2-101(1) (1991) states: "[Tihe waterswithin the state are the property of the state for the use of its people."28. In Re Yellowstone River Water Rights, 253 Mont. at 179, 832 P.2d at 1217 (citingState v. McDonald, 220 Mont. 519, 524, 722 P.2d 598, 601 (1986)).29. MONT. CODE ANN. § 85-2-407 (1991).30. MONT. CODE ANN. § 85-2-419 (1991).31. MONT. CODE ANN. § 85-2-407 (1991).32. Musick, supra note 23, at 22-1.5Stone: Privatization of the Water ResourcePublished by ScholarWorks at University of Montana, 1993104 MONTANA LAW REVIEW [Vol. 54confer exclusive private ownership of this once public resource?6ontana Law Review, Vol. 54 [1993], Iss. 1, Art. 6https://scholarworks.umt.edu/mlr/vol54/iss1/6

Privatization of the Water Resource: Salvage, Leases and Changes

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Privatization of the Water Resource: Salvage, Leases and Changes

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