On June 25, 2018, the Colorado Supreme Court denied an appeal from Coors Brewing Co. and held that a water user may not obtain the right to reuse return flows by amending a decreed plan for augmentation. Instead, the user must adjudicate a new water right. Additionally, the Court confirmed that replacement water retained its character as native, tributary water and therefore was not allowed to be used and reused to extinction but rather must be allowed to flow back into the river as return flows. [Coors Brewing Co. v. City of Golden, 2018 CO 63 (Colo. 2018).]

Background and Water Court Decision

Coors currently operates three augmentation plans to replace water diverted out-of-priority for use in its brewery and industrial complex. Although those uses consume a large portion of those diversions, in many years there was excess water that was returned to the Clear Creek as return flows. Beginning in the 1970s, with approval and oversight of the State and Division Engineers, Coors began a water leasing program that sold those would-be return flows to other downstream users.

In 2014, Coors attempted to lease excess return flows to Martin Marietta Materials, Inc., but this lease was denied by the Colorado State Engineer. Coors and Martin then challenged this denial before the Water Court, arguing that return flows could be reused or successively used, as they had been for more than 40 years.

The Water Court agreed with the State Engineer, finding that the three decreed augmentation plans only allow for a single use by Coors, and that use is limited to the uses in the decree (commercial and industrial, among others). But the augmentation plans did notauthorize the reuse or successive use of that water. So the Water Court held that Coors was required to allow unconsumed water to flow back into the stream.

Coors argued that water diverted under an augmentation plan is akin to developed, foreign, or non-tributary water that can be fully consumed, reused, and successively used to extinction. The Water Court rejected this argument, holding that the character of the water is never changed—it remains native, tributary water, and so the rules governing native, tributary water must apply.

Coors also tried to argue that other users had no expectation of return flows from fully augmented diversions, and therefore Coors had no obligation to release the return flows. The Water Court also denied this argument, relying on the 1987 Colorado Supreme Court decision in Water Supply and Storage Co. v. Curtis. 733 P.2d 680 (Colo. 1987). In that case, the court ruled that:

• . . .once the beneficial use on which a water right is based has taken place, any unconsumed waters remain waters of the state and were subject to appropriation.See,Coorsat 7.

Like Coors, the applicant in Water Supplyargued that because they had made use of the return flows immediately after appropriation, no downstream users had ever developed an expectation or reliance on those return flows. However, the court ruled that question was irrelevant—the pertinent question was whether the user (Water Supply) had established an appropriative right to the return flows. Neither Coors nor Water Supply had established that right, so neither was allowed to reuse or successively use the return flows.

After the Water Court ruling, Coors attempted to amend one of its existing augmentation plans to include the reuse and successive use of the return flows. Golden moved to dismiss that application, and the Water Court agreed, holding:

• . . .Coors may not obtain the right to reuse return flows through an amendment to its decreed augmentation plans, but instead may only obtain the right to reuse return flows by adjudicating a new water right. Id.at 8.

To reach this conclusion, the Water Court relied on the fundamental rule governing native stream water: diversions are limited to one use, and any return flows belong to the stream, subject to appropriation and administration. Therefore, allowing Coors to reuse or successively use or lease those return flows would constitute and impermissible enlargement of its water right. Rather than seeking a new appropriative right to those return flows, Coors appealed the Water Court decision to the Colorado Supreme Court.

The Supreme Court’s Decision

Coors’ appeal raised three issues: 1) the Water Court erred in ruling that Coors may not obtain reuse rights by amending its augmentation plan, 2) the Water Court erred in finding that return flows are subject to appropriation by other users,i.e. Coors believed that return flows from augmented water are more akin to foreign or developed water, and 3) the Water Court erred in interpreting the augmentation plan decrees to require return flows to the stream, regardless of whether those flows are needed to fully augment Coors’ out-of-priority diversions

The Colorado Supreme Court began its analysis with a detailed explanation of the history of Colorado water law, including the overarching precedence of the prior appropriation doctrine. The Court then reviewed the statutory and case history of augmentation plans, and their necessity in a pure prior appropriation state like Colorado.

Reuse Rights Via Amended Augmentation Plan

Turning to Coors’ first claim, the Court noted that the only permitted amendments to augmentation plans are for “additional or alternative sources of replacement water.” See, C.R.S. § 37-92-305(8). That reading is supported by case law:

• . . .[i]n order to reuse or make successive use of return flows, all of the elements of an independent appropriation must be established and decreed as a separate water right. Santa Fe Trail Ranches Prop. Owners Ass’n v. Simpson, 990 P.2d 46, 54 (Colo. 1999).

Importantly, Coors had previously adjudicated other decrees allowing for reuse and successive use—but its three augmentation plans do not allow those uses. The absence of such a provision in the augmentation decrees indicated to the Court that the use and successive use of excess return flows was not an originally contemplated or decreed use.

The Court also rejected Coors’ argument that the State Engineer’s prior approval of the return flow leases legitimized that use:

• Administrative action, forbearance of enforcement, or State Engineer acquiescence in water use practices does not substitute for judicial determination of use rights. Empire Lodge Homeowners’ Ass’n v. Moyer, 39 P.3d 1139, 1156-57 (Colo. 2001).

In sum, the Court concluded that not only was there no statutory support for Coors’ claims, the idea that return flows from an augmentation plan could be reused without their own appropriation is fundamentally conflicted with the basics premises of Colorado water law.

Implied Right to Reuse and Make Successive Use of Water

The court then addressed Coors’ contention that because return flows from an augmentation plan compensate, and sometimes overcompensate, the river, there should be an implied right to reuse and make successive use of that water. In essence, Coors argued that once it makes the river “whole” (augments the amount that it diverts out-of-priority) it should be able to do what it wants with any excess water. Coors’ therefore claimed that this excess water was of the same character as foreign or produced water—it didn’t belong there in the first place, so it could be used and reused to extinction by the original user. See, C.R.S. § 37-82-106(1).

The Court rejected this argument, pointing out that unlike foreign or produced water, Coors has not introduced water from a source unconnected to the stream system:

• The mere act of diverting and fully replacing water under an augmentation plan does not effectively change the character of the diverted water as native, tributary water. Coorsat 18.

The water began as native, tributary water, and, regardless of diversions and replacements, remains native, tributary water.

In its analysis of the argument, the Court noted that Coors is never required to overcompensate the stream because its augmentation decrees specifically allow Coors to reduce its replacement obligations in the amount of return flows generated. Therefore, there is no need for Coors to ever replace so much water that there is enough return flows to lease or reuse. When operated as decreed, the augmentation plan simply makes Clear Creek “whole” again—no more, no less.

This, the Court argued, is the very essence of an augmentation plan. Although there might be times when Coors does replace more than it diverts, that is a normal function of augmentation plans. Therefore, on the occasions that Coors does overcompensate the stream, that’s merely a byproduct of the legislatures policy of “maximum flexibility” in using augmentation plans to allow new uses while protecting senior appropriations.

Alleged Water Court Error

Finally, Coors made a last ditch argument that the Water Court erred in holding that its augmentation decreed required Coors to dedicate return flows to the stream, regardless of whether those return flows were needed to complete the replacement of out-of-priority diversions. The Court denied this argument by quoting directly from two of Coors’ augmentation decrees:

• [A]fter use, the portion of the water not consumed within [Coors’s] industrial complex is measured … and returned to the Clear Creek-South Platte stream systems at various [specified] locations. Coors at 20.

The third augmentation decree also contained similar language requiring the return flows to be returned, and making no mention of the reuse or successive use of replacement water.

Although Coors attempted to argue that those sentences only governed where Coors may release the return flows, the Court rejected that proposition in favor of the plain language reading that expressly requires unconsumed water to be returned to the stream system. That reading also aligns with the above-discussed reasoning that the augmentation water remains native, tributary water that, when returned to the stream, becomes available for appropriation by other users.

Conclusion and Implications

The Colorado Supreme Court therefore rejected all three of Coors’ arguments on appeal. So, if Coors wishes to continue its water leasing program, it will have to file a new application to add the reuse and successive use of return flows.

Augmentation plans were created by the Colorado General Assembly to allow maximum flexibility in water uses, while still protecting the system of prior appropriation and its senior water rights. To that end, replacement water from an augmentation plan is treated the same as any other diverted water—absent a decree stating otherwise, it may be used once, for only its decreed use, and then any excess water must be allowed to flow back into the stream as return flows, where it is subject to appropriation and use by another party.

(John Sittler, Paul Noto)