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Nevada State Engineer Approves Long-Sought Water Permits for Molybdenum Mine By Allowing Mitigation of Conflicts with Existing Rights

On June 6, 2019, the Nevada State Engineer issued Ruling 6464, which approved over 11,000 acre-feet of groundwater applications for a proposed molybdenum mine in Eureka County, Nevada known as the Mt. Hope project. This ruling ended years of litigation that made three trips to the Nevada Supreme Court and resulted in two published opinions. Ultimately, the applicant entered into settlement agreements with the protestants, paving the way for the State Engineer’s approval, notwithstanding his acknowledgment that the permits will cause nearby springs to dry up.

Background

Starting in 2006, General Moly, Inc., through a subsidiary Kobeh Valley Ranch, LLC (collectively: KVR) filed applications for new water appropriations and to change the point of diversion, place of use and manner of use of existing water appropriations to develop the Mt. Hope open-pit mine. The project will be constructed on public lands managed by the Bureau of Land Management at a total cost of nearly $1.3 billion. The 36-square-mile mine footprint will straddle two hydrographic basins, Kobeh Valley and Diamond Valley.

To provide water for the project, KVR proposed a well field in Kobeh Valley. Over the anticipated 44-year life of the project, KVR predicted a sizeable draw down of groundwater in the vicinity of the well field. KVR’s hydrogeology and groundwater modeling experts anticipated that KVR’s pumping would completely dry nearby springs and stock watering wells. Although these sources produce relatively small amounts of water (some springs estimated to discharge less than one gallon per minute), the water was already appropriated by others.

Litigation History

The Applications were protested by Eureka County, the U.S. Bureau of Land Management (BLM), and certain affected senior appropriators. A primary protest ground was that the appropriations would conflict with existing rights, in violation of Nev. Rev. Stat. (NRS) 533.370(2). The statute provides in pertinent part:

“[W]here there is no unappropriated water in the proposed source of supply, or where its proposed use or change conflicts with existing rights or with protectable interests in existing domestic wells …, or threatens to prove detrimental to the public interest, the State Engineer shall reject the application and refuse to issue the requested permit.”

After two hearings in 2008 and 2010 (the latter occurring after remand from the district court), the State Engineer issued Ruling 6127 in 2011 approving the applications.

In Ruling 6127, the Nevada State Engineer recognized that certain springs located on the Kobeh Valley floor that are hydrologically connected to the underlying water table would be “impacted” by KVR’s pumping. The State Engineer further recognized that those springs were the source of existing, senior water rights. Nevertheless, the State Engineer concluded that the drying up of springs was not a “conflict with existing rights” prohibited by NRS 533.370(2) because KVR could fully mitigate any impact. To that end, the State Engineer required KVR to prepare, with the assistance of Eureka County, a monitoring, management, and mitigation plan (3M Plan) for approval by the State Engineer before KVR could divert any water.

Certain protestants sought judicial review of Ruling 6127, which the district court denied, concluding that substantial evidence supported the State Engineer’s decision that KVR would be able to mitigate any adverse impacts to existing water rights. The district court further held that NRS 533.370(2):

“. . .does not prevent the State Engineer from granting applications that may impact existing rights if the existing right can be protected through mitigation, thus avoiding a conflict with existing rights.”

While Ruling 6127 was before the district court, KVR developed a 3M Plan in coordination with Eureka County, which the State Engineer approved. Nevertheless, the State Engineer retained ultimate authority over the 3M Plan, approving it with the:

“. . .understanding that components of the Plan are subject to modification based on need, prior monitoring results, or changes in the approved water rights.”

Certain protestants petitioned for judicial review of the State Engineer’s approval of the 3M Plan, which the district court denied.

The protestants then appealed both decisions to the Nevada Supreme Court, which consolidated the cases for review.

The Nevada Supreme Court Decisions

Eureka I

On appeal, the Supreme Court decided it did not need to reach the question of whether NRS 533.370(2) allows the State Engineer to conditionally grant applications on the basis of future successful mitigation in order to avoid a “conflict with existing rights.” Rather, the Court concluded that because the 3M Plan was prepared after Ruling 6127 issued, there was not substantial evidence before the State Engineer to support the decision:

“Nowhere in the ruling… does the State Engineer articulate what mitigation will encompass, even in the most general sense. And evidence of what that mitigation would entail and whether it would indeed fully restore the senior water rights at issue is lacking: there was no mitigation plan in the record before the district court or in existence when KVR’s applications were granted. . . .[T]he State Engineer’s decision to grant an application, which requires a determination that the proposed use or change would not conflict with existing rights, NRS 533.370(2), must be made upon presently known substantial evidence, rather than information to be determined in the future. . . .” Eureka County, et al. v. State Engineer, et al., 131 Nev.Adv.Op. 84, 359 P.3d 1114, 1119-20 (2015) (Eureka I).

Although asserting it was not addressing the question of whether Ruling 6127 violated NRS 533.370(2), the Supreme Court questioned the characterization of KVR’s proposed use as “impacting” rather than “conflicting with” existing rights:

“[C]ontrary to the State Engineer’s, KVR’s, and amici’s assertions, KVR’s pumping would not merely impact existing water rights; the very evidence upon which the State Engineer relied demonstrates that KVR’s appropriation would cause the complete depletion of the source of existing water rights. The Legislature did not define exactly what it meant by the phrase ‘conflicts with’ as used in NRS 533.370(2), but if an appropriation that would completely deplete the source of existing water rights does not ‘conflict with’ those existing rights, then it is unclear what appropriation ever could… To the extent that KVR’s proposed appropriations would deplete the water available to satisfy existing rights at issue, they are undeniably ‘in opposition’ thereto, and thus ‘conflict with’ the existing rights under NRS 533.370(2)”. Eureka I, 359 P.3d at 1118.

The Court reversed and remanded to the District Court.

Eureka II

On remand, the parties disputed whether the Supreme Court’s remand instructions allowed KVR to submit additional mitigation evidence. The District Court concluded no, and granted the protestants’ petitions for judicial review, vacated the State Engineer’s approval of the 3M Plan, denied the water right applications and vacated the permits. KVR appealed, and the Supreme Court affirmed. State Engineer v. Eureka County, 133 Nev. Adv. Op. 71, 402 P.3d 1249 (2017) (Eureka II).

State Engineer Ruling 6464

BecauseEureka Iand Eureka IIterminated all proceedings concerning KVR’s initial applications, KVR filed another set of applications with a completed 3M Plan. Some of KVR’s applications sought new appropriations and some sought to change existing rights. Eureka County, certain senior water rights holders and an organization that represented groundwater users called Diamond Natural Resources Protection & Conservation Association (DNRPCA) protested. At the outset of the administrative hearing, KVR and most of the protestants reached a settlement under which the settling protestants withdrew their protests in exchange for KVR withdrawing its applications for new water appropriations and other concessions.

The hearing proceeded on KVR’s change applications with just one protestant remaining. Months after the hearing, that remaining protestant also reached a settlement with KVR and withdrew its protest. At the hearing, KVR submitted evidence that monitoring indicated potential adverse impacts to certain springs. KVR submitted an augmentation plan to augment the senior rights that would be impacted by KVR’s pumping.

The State Engineer then issued Ruling 6464, which approved KVR’s change applications. Appearing to address the Nevada Supreme Court’s admonitions in Eureka I, the State Engineer concluded:

“While the State Engineer finds that an approval of KVR’s applications would result in a conflict with existing rights, that potential conflict has been resolved through an independent agreement between [the protestant] and KVR resulting in the withdrawal of the remaining protests to KVR’s applications. Because [the protestant] has withdrawn its protests concerning the conflicts with existing rights, as well as other grounds, despite any impairment of the rights on Mud Spring, the State Engineer will acknowledge the contractual resolution to the conflict as being sufficient to avoid the conflict and not mandate the State Engineer’s denial due to conflicts with existing rights. The State Engineer acknowledges the augmentation plan presented by KVR as contained in [its expert’s] report and adopts the augmentation plan as a condition that it be implemented prior to the diversion of any water for beneficial use by KVR.”

The State Engineer’s disposition of the “conflict” in this manner was surprising in light of a footnote in the Supreme Court’s Eureka Idecision, which stated:

“The State Engineer’s ruling states that though the BLM originally protested KVR’s appropriations, it withdrew its protests “after reaching a stipulation on monitoring, management and mitigation” with KVR. It seems the State Engineer assumed this was sufficient to dispense with the conflict under NRS 533.370(2), but this is a less than clear conclusion.” Eureka I, 359 P.3d at 1118 n.3 (emphasis added).

Conclusion and Implications

Although Nevada law allows “any person feeling aggrieved by any order or decision of the State Engineer” to seek judicial review, it is unlikely that the State Engineer’s interpretation of NRS 533.370(2) and analysis of conflicts with existing rights will be challenged in the courts. In settling with KVR, the protestants withdrew their protests and waived their rights to appeal. The judicial review statute could be interpreted to allow someone who was not a protestant to challenge Ruling 6464. But in light of the long history of litigation, any interested parties likely got involved long ago and have settled with KVR.

For that reason, the Mt. Hope mine litigation will likely not give the Supreme Court the opportunity to address the full extent of the State Engineer’s authority to approve applications even when acknowledged conflicts with senior rights exist. Nevertheless, the question of whether conflicts with existing rights can be overcome through mitigation and augmentation will likely be the subject of a future Nevada Supreme Court decision.

(Debbie Leonard)