One of Arizona’s last free-flowing streams, the San Pedro River, which provides critical habitat to millions of birds and is home to over 80 species of animals, might be in danger of drying up according to environmental groups, the Department of the Interior and other concerned citizens. See,Galvan, Astrid, “Arizona Sides with Developer in River Water Use Dispute,” Associated Press(August 9, 2018). The Arizona Supreme Court’s recent ruling in Silver v. Pueblo Del Sol Water Co. will allow a proposed 7,000 home development to be built within five miles of the River.

On August 9, 2018, in a 4-3 decision with several vigorous dissents, the Arizona Supreme Court held that the Arizona Department of Water Resources (ADWR) is not required to consider unquantified federal reserved water rights when it determines whether a developer has an adequate water supply for purposes of A.R.S.§ 45-108. An “adequate water supply” means both: 1) “Sufficient groundwater, surface water or effluent of adequate quality will be continuously, legally and physically available to satisfy the water needs of the proposed use for at least one hundred years” and 2) “The financial capability has been demonstrated to construct the water facilities necessary to make the supply of water available for the proposed use, including a delivery system and any storage facilities or treatment works.” A.R.S. § 45-108(I). [Silver v. Pueblo Del Sol Water Company, CV-16-0294-PR (Az. Aug. 9, 2018).

Background

This case involves a proposed development called “Tribute,” which covers about 4800 acres of land in Cochise County and which would include about 7000 commercial and residential units near Sierra Vista, Arizona. In 2013, ADWR approved Pueblo Del Sol Water Company’s (Pueblo) application to supply water for Tribute, finding that there is an adequate water supply for the development. However, the development site is located approximately five miles from the San Pedro River, one of the only free-flowing perennial streams in Arizona. In 1988, Congress created the San Pedro Riparian National Conservation Area (SPRNCA) and reserved enough water to fulfill SPRNCA’s conservation purpose with a 1988 priority date, ordering the Secretary of the Interior to “file a claim for the quantification of such rights in an appropriate stream adjudication.” Silver v Pueblo Del Sol, ¶ 3, p. 3. Also, SPRNCA has a 1985 state certificate-based surface water right and other pending state-based applications. SPRNCA’s claims have not yet been adjudicated in the Gila River General Stream Adjudication (the “Gila Adjudication”). The Bureau of Land Management (BLM) manages national conservation areas, including SPRNCA, on behalf of the Secretary of the Interior.

To meet Tribute’s demands, Pueblo Del Sol believes that it would need to increase its annual groundwater pumping from about 1430 acre-feet to 4870 acre-feet. Arguing that this increased pumping would affect the flow of the San Pedro River and conflict with its federal reserved water rights, the Bureau of Land Management along with other Plaintiffs objected. The Administrative Law Judge (ALJ) agreed with ADWR’s designation of adequate water supply for Pueblo Del Sol’s delivery of water to Tribute. ADWR issued an Order affirming the ALJ’s decision and the Plaintiffs in the case filed complaints for judicial review. The state Superior Court vacated ADWR’s decision, concluding that pursuant to A.R.S. § 45-108, ADWR was required to consider potential and existing legal claims that may affect the availability of the water supply, including BLM’s unquantified federal reserved water right, when determining ‘legal availability’. The Court of Appeals then vacated the Superior Court decision and remanded the matter to ADWR, concluding that ADWR did not have to consider unquantified federal reserved water rights when determining ‘legal availability,’ but ADWR must consider the impact of BLM’s federal reserved water right when determining ‘physical availability’.

The Supreme Court’s Decision

The Arizona Supreme Court granted review because the case presents an issue of statewide importance. The Court agreed with all parties that the Court of Appeals erred in directing ADWR to consider BLM’s federal reserved water right under ADWR’s ‘physical availability’ determination. Also, the four Justice majority held that ADWR’s ‘legal availability’ regulation, A.A.C. R12-15-718, which provides that a private water company such as Pueblo Del Sol has a ‘legally available’ supply of groundwater when it possesses a CC&N, is consistent with the Statutory requirements of A.R.S. § 45-108(I), and does not require consideration of unquantified federal reserved water rights. Because Pueblo Del Sol has a CC&N, the Court reasoned, ADWR did not have to consider SPRNCA’s unquantified federal reserved water rights when determining whether to approve Pueblo Del Sol’s application for an adequate water supply designation. The Court also noted that:

• . . .the wisdom of interpreting [the term ‘legal availability’] to require consideration of unquantified federal reserved rights is questionable. ADWR does not have the authority to quantify BLM’s rights; that is the exclusive domain of the Gila Adjudication. Silver v Pueblo Del Sol, ¶ 32, p. 14.

Furthermore, the Court held:

• We decline Plaintiff’s implicit invitation to transform ADWR, by judicial fiat, into a forum for anticipatory injunctive relief through regulation based upon unquantified federal reserved water rights. Id.at ¶ 37, p. 16.

Importantly, however, the Court limited its holding to unquantified federal reserved water rights, explicitly stating that:

• . . .we need not decide whether ADWR must consider quantifiedfederal reserved water rights. ADWR conceded at oral argument that it would have to acknowledge a quantified federal reserved water right if the federal government could prove, likely through an injunction proceeding, that an applicant’s prospective groundwater pumping would infringe upon its right. Id. ¶ 43, p. 19.

With this statement, the Court left open the possibility that ADWR must consider quantifiedfederal reserved water rights in determining ‘legal availability’ for adequate water supply designations.

 The Concurrences and Dissents

With respect to ADWR’s ‘legal availability’ determination, the three Justices concurred in part and dissented in part, arguing that ADWR must consider unquantified federal reserved water rights. Chief Justice Bales took issue with ADWR’s reliance on the issuance of a CC&N to determine ‘legal availability’. The Chief Justice argued that A.R.S. § 45-108 requires an “evaluation” of ‘legal availability’, which includes consideration of existing federal reserved water rights. When the Arizona Corporation Commission issues a CC&N it does not evaluate water supply, so, according to the Chief Justice, ADWR’s regulation is inconsistent with the requirements of A.R.S. § 45-108, which mandates that ADWR determine if there is an adequate water supply for 100 years. Furthermore, the Chief Justice argued that many of ADWR’s projections to determine a 100-year water supply are speculative, and the consideration of unadjudicated rights would be no more so than a projection about physical or continuous availability. Chief Justice Bales purported:

• Requiring ADWR to consider federal water rights in making an adequate water supply determination does not require the water rights to be finally adjudicated.

Finally, Chief Justice Bales noted that the potential harm suffered by homeowners who purchase homes in a development that does not have an adequate water supply must be considered because it is the underlying purpose of the adequate water supply statute “Essentially, the majority would allow ADWR to ignore the legal inadequacy of a proposed water supply until the problem becomes a reality. This interpretation defeats the adequate water supply provision’s manifest purpose to proactively protect consumers in Arizona before they purchase property,” wrote the Chief Justice. “[G]roundwater users in the area with inferior water rights should not bring the conservation area’s wildlife populations and aquatic environments to the brink of collapse before the federal government can enforce its rights,” argued the Chief Justice emphatically.

Justice Bolick wrote that the majority’s construction of the ‘legal availability’ requirement in A.R.S. § 45-108 “renders that command essentially meaningless.” Id.¶ 74, p. 31. Justice Bolick took issue with the fact that ADWR’s regulation only requires that the applicant has secured a CC&N, but he Arizona Corporation Commission has no jurisdiction over water and the CC&N process requires no analysis whatsoever of water supply. Therefore, Justice Bolick argued that:

• . . .[t]he lack of any meaningful connection between the statutory command to determine legal availability and the substance of ADWR’s regulation renders the agency’s definition untenable. Id.¶ 80, p. 32.

Obtaining a CC&N tells us nothing about the legal availability of water for the next hundred years, Justice Bolick reasoned, and furthermore he noted that Pueblo Del Sol’s CC&N was obtained forty-six years ago, before either ADWR’s regulation or the statute requiring a legal availability determination were enacted. Therefore, obtaining a CC&N is completely unrelated to determining legal availability and would likely not survive legal challenge had ADWR adopted it as part of its regulation. Additionally, Justice Bolick observed that the legislature recently enacted a statute instructing that with regard to statutory interpretation, no deference should be provided “to any previous determination that may have been made on the question by the agency.” A.R.S. § 12-910(E) (effective Aug. 3, 2018). Id.¶ 82, p. 33.

Finally, Justice Bolick pointed out that:

• . . .speculation is inherent in any projection regarding water availability, legal or otherwise, ‘for at least one hundred years,’ but that is exactly what the statute commands. Id.¶ 84, p. 35. Justice Bolick agreed with the Chief Justice in that:

• ADWR’s projection is not a predetermination of legal rights, has no precedential effect, and does not usurp the Gila Adjudication’s judicial authority. Id.¶ 87, p. 35.

Justice Pelander concurring in the partial dissents, invited the legislature to rectify the disagreement between the Justices. “If the majority has it wrong,” he wrote:

• . . .statutory clarification would be helpful to developers, consumers, water companies, ADWR, and many other entities and persons who care about and are affected by water issues in this state. Id.¶ 91, p. 37.

Conclusion and Implications

The Majority of the Arizona Supreme Court deferred to ADWR, placing great weight in the fact that SPRNCA’s inchoate federal reserved water rights are unquantified. They did not believe that the statute requires ADWR to speculate or consider such tenuous rights. The Court left open that there may be a distinction between unquantified rights and unadjudicated rights. For example, if a water user has a permit to appropriate pursuant to A.R.S. § 45-152, the Court may consider the right to be quantified. Also, for rights that pre-date the Arizona 1919 Water Code and appropriation statutes, the right might be considered quantified if the legal requirements in place at the time of appropriation were followed and a Statement of Claim that includes a quantity of water has been filed with ADWR. Nevertheless, the Court’s holding creates some uncertainty as to the impact on state-based rights that have not yet been adjudicated.

Also, the strident dissents in this case raise the likelihood that the legislature and possibly ADWR will attempt to remedy some of the weaknesses in the legal availability prong of the adequate water supply determination.

A Motion for Reconsideration and Request to Stay Mandate was filed on August 24, 2018. However, on August 27th, The Court denied the Motion despite strong public reactions to the case, especially by those who fear that the ruling will allow the depletion of the San Pedro River’s streamflow.

(Alexandra Arboleda, Lee Storey)