Water Transfers

[This paper, presented at CLE International's Western Water Law Conference, Denver, Colorado, on March 5, 1998, updated Sandy's article Water Quality Exchanges, published by the Rocky Mountain Mineral Law Foundation in 39 RMMLI 19-1 (1993). The paper's 392 endnotes contained a substantial amount of additional material, but due to space constraints for this web page, the endnotes were omitted. Readers interested in this subject are encouraged to obtain a printed version which includes the endnotes.]

With increasing population and development of the West, less unappropriated water is reliably available. Consequently, new water demands are frequently satisfied by the acquisition and transfer of already-established water rights. Transferring old rights to new uses usually is done by changing the acquired water right or by using water produced by the old right as substitute supply in an augmentation plan or exchange. Whichever form it takes, the transfer can be highly complex, with significant differences between states.

Changes of Water Rights

Every one of the western states provides a statutory procedure to change an existing water right. The impetus for making such a change is to retain the old priority while modifying the old right to meet new needs. While implied in some states, the retention of that priority frequently is recognized by statute.

What constitutes a change is highly dependent on state law, which also may limit the nature of permissible changes. In Colorado, which appears to have the most comprehensive definition:

In other states, the definition is often more restrictive. In Alaska, for example, an authorized change is limited to a change in the place of use. Each state has its own distinctive definition. Consequently, the first inquiry to be made is whether a change needs to be accomplished. If so, then the standards for the change established under the appropriate state law must be followed.

The forum in which a change is obtain also varies from state to state. In most western states, changes are approved by an administrative agency. Only in Colorado are changes obtained judicially, in the "water court."

Very generally, changes of water rights require a demonstration of ownership, a demonstration that the change will not injure other water users, and satisfaction of a plethora of other standards, many of which are peculiar to only a few, or perhaps, to only one state.

Ownership. While implicit in most states, a showing of at least prima facie ownership is expressly required in others, including Colorado, Alaska, Oregon, and Wyoming.

No Injury. The universal standard is that the change of a water right may not injure other water rights. While most have additional requirements, every western state recognizes the no-injury rule. In Colorado, having approved a change the water courts are required to retain jurisdiction over the injury issue.

Public Interest. Almost as widespread as the no-injury rule is the requirement that a change must be in the public interest. While the words used and their definitions may vary significantly, a majority of western states expressly provide for some form of public interest review. In many other states, even where the term "public interest" or a synonym do not appear in the statutes or case law, public interest concepts are still utilized. For example, change reviews which forbid speculation or consider feasibility (e.g. Colorado, Montana, Nevada, Utah) or which require reasonableness (Kansas), water conservation (Kansas, New Mexico, Texas), protection of the local agricultural base (Idaho), of the basin of origin (Oregon, Texas), or of other appropriators' water quality (Kansas, Montana) easily spill over into the public interest. In other states (e.g. Hawaii, Idaho, Montana, North Dakota) the new use must be "beneficial," a term ripe with public interest ramifications. Protection of instream values (California, Kansas, Nebraska, Utah) as well as of fish and wildlife values (Oregon) and habitats are certainly public interest concepts, as is the recent protection accorded in Colorado not only to water but to all other natural resources and that state's requirement of revegetation of irrigated land which is dried-up as result of a transfer. Similarly, the public interest is involved when the consent of local districts is required (Colorado, Arizona, Nevada, Washington), when protection is extended to non-changing shareholders in a ditch company (Colorado), or compliance is required with governmental plans (Hawaii).

Unperfected rights. In many states, a form of inchoate water right has been established. Those rights will be perfected once water is applied to beneficial use. While this development is laudable, allowing appropriators to know their priority before expending capital to construct facilities, those inchoate rights are frequently viewed with suspicion. As a result, it was long the general rule that inchoate rights could not be changed. The press of new societal needs, however, has caused widespread modification. For example, in Oregon until 1995 a change could be made only of "a water use subject to transfer," a term which appeared to eliminate unperfected or inchoate rights. In 1993, the Nevada legislature expressly provided that before water has been applied to its intended use under a permit, the "place of diversion, manner of use or place of use" may be changed. In South Dakota, a permit or license may be changed without extension of the time for construction, absent injury, and if the change is in the public interest. In Colorado, the term "change of water right" includes changes of conditional water rights as well as changes of water rights. Nevertheless, Washington appears to allow a change only if, under the right to be changed, water has previously been applied to a beneficial use. In Wyoming, unadjudicated permits may enjoy a change of the point of diversion or means of conveyance, while only water rights may be subject to a change in type or place of use.

Abandonment or forfeiture. For some time, a change proceeding was one of the most popular ways to resurrect an unused water right. As a result, as part of a change proceeding, many states now require or allow an inquiry into whether the right has been abandon or forfeited, as do Arizona and Colorado.

Appurtenancy and severance. The traditional rule in many states was that water rights, particularly irrigation rights, were appurtenant to and could not be severed from the land they served. For practical market reasons there has been a steady erosion of that rule, primarily by specific exceptions, e.g. in Oklahoma, Washington, South Dakota, Wyoming, and several other states. Consequently, a careful examination of specific state law is advisable when seeking to change an irrigation right.

Legislative action. In states where water is a particularly important scarce commodity, the legislature itself often wishes to supervise transfers. This is the case in Arizona, in the event of large hydroelectric generation, as well as in Idaho, for a transfer of groundwater outside a ground water basin for irrigation of 5,000 acres or more or in a total annual amount of 10,000 a.f., in Montana for changes involving annual amounts of 4,000 a.f. or 5.5 c.f.s. or more as well as transfers for use outside the state, and in South Dakota and Wyoming.

Limitations on municipalities. Many states subject water right changes by municipalities to special scrutiny. For example, in Idaho, when change may be made only if within the amount of the municipalities "reasonably anticipated future needs, the service area, and the planning horizon" and, when the water use to be changed is held by a municipality for its reasonably anticipated future needs, it may not be changed to a place of use outside its service area. On the other hand, Oregon relaxes its appurtenancy rule for municipalities which are using the water for municipal purposes within its boundaries.

Miscellaneous. There is a rich and wide diversity among the states regarding additional limitations on changes, including: subjecting the change to other special rights (Hawaii), allowing a change to result in additional water (Hawaii, Nebraska), allowing changes to instream flows (Montana, Colorado), allowing changes only to uses within the same or superior preference category (Nebraska, North Dakota, Utah), providing for temporary changes (California, Montana, Nevada, Oregon, Utah, Washington), providing for the change of small amounts (California, Utah) or large amounts (Montana), for changes promoting environmental preservation or enhancement (California) or promoting the reuse of imported water (Colorado), only for new use within the state (Idaho), for salvaged or conserved water (Montana, Oregon), to chase a wandering stream (Oregon) or fluctuating water levels (Oregon) to meet an emergency (New Mexico) or to confirm a wandering point of diversion (Oregon). The restrictions imposed by states may require such things as the change to involve the same source of supply (Kansas, Nebraska), to be limited to consumptive use (Wyoming), by the adequacy of facilities (Montana, North Dakota), to protect wells from the dry-up of overlying land (Colorado) requiring "reasonable raising and lowering of the static water level," implementation of conservation practices, and modifications to protect the "public interest" (Kansas). In some limited instances, however, the states' approaches are diametrically opposed on particular issues. For example, Montana gives protection (dilution flows) to a discharger to meet his effluent limitations while Colorado does not. In other instances, the states have developed special rules for the change of storage rights (Wyoming) or of groundwater rights, e.g. Arizona, Oregon, Utah, and Wyoming.

Terms and Conditions. Finally, in order to facilitate changes of water, many states authorize the impositions of terms and conditions which, although limiting the change in some regard, allow it to proceed, e.g. Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nebraska, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah,.

Exchanges

Although changing water rights to accommodate new needs is recognized in all the western states, alternate devices exist in some states. Instead of being changed, the old water right is used to generate a substitute supply for downstream seniors, thereby satisfying the senior calls and, as a result, allowing junior or out-of-priority diversions for the new need. Most frequently these devices are called "exchanges," although they and their variations are also known as substitute supply plans, replacement plans, augmentation plans, rotation plans, in lieu plans, make up plans, commingling, secondary use, physical solutions, mitigation plans, and repositioning plans. With the caveat that there are significant differences, all these devices will be referred to in this paper as "exchanges."

Of the western states, exchanges (or close relatives) appear to be accepted in some form by Arizona, California, Colorado, Idaho, Montana, Nebraska, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. They do not appear to be available in Alaska, Hawaii, Kansas, North Dakota, Oklahoma, South Dakota, and Texas.

When they first came on the scene more than 100 years ago, exchanges were relatively simple. In order to divert or store water "by exchange," an upstream junior water right owner simply needed to make sure that downstream seniors were kept whole through the receipt of a specifically designated substitute supply of water sufficient to satisfy their senior water rights. Typically, reservoir releases which the junior could not use himself were designated as a substitute supply for the downstream seniors' benefit. Such exchanges have become routine in several states and are administered by state water officials. With increased competition for water, however, exchanges now appear in every conceivable combination of direct flow and storage. With the proliferation of exchanges, their administration is becoming increasingly demanding if not overwhelming.

Exchanges make sense under only certain conditions:

Among the states, authorization for exchanges takes a variety of forms. Exchanges were initially approved by case law. Many states have now enacted statutes specifically authorizing them. Where exchange statutes are of limited value, seldom used, or non-existent, exchanges are approved through other mechanisms such as those for changes in existing water rights or for the determination of new water rights. Increasingly there is case law or statutory authority to use groundwater in exchanges. A few states have administrative regulations applicable to exchanges. In several other states, exchanges may operate without judicial or administrative approval.

The universal rule is that the operation of exchanges (1) must produce substitute supply which satisfies senior rights in amount, timing, and quality and (2) may not injure other water rights. In many states a public interest test must also be met. On the opposite side of the no-injury coin, in states specifically authorizing exchanges, some now award priorities to them providing protection to the exchange from injury resulting from the operation of junior water rights, including other exchanges. A priority is particularly important when there is limited exchange potential (undiverted stream flow in the stream reach between the point of diversion by exchange and the point of introduction of substitute supply), when new appropriations may occur within the exchange reach, or when existing water rights may be changed in a way which would interfere with the exchange.

What follows is a brief description of the legal aspects of exchanges in those western states in which exchanges may operate:

Arizona:

Because Arizona emphasizes groundwater rather than surface water, exchanges are not as popular as elsewhere. Nevertheless, exchanges are not newcomers to Arizona. Since 1926, Arizona's reported case law has recognized exchange concepts. Statutes recently enacted may increase the utility and popularity of exchanges in Arizona, allowing not only exchanges between users on the same surface stream system, but also between users from the same ground water source, and between ground water users and surface water users.

Arizona now has a comprehensive statutory scheme which codifies many of the exchange principles found elsewhere in the western states. The absence of priorities for exchanges is compensated for by some interesting local twists. Exchanges may be operated pursuant to an enrolled contract, upon required notice, or pursuant to a permit. While the Director of the Department of Water Resources maintains a registry of all exchanges of each type, although registration reportedly results in no hierarchy of priorities among exchanges. Contract exchanges are the least regulated form of exchange in Arizona. There is no express statutory requirement that enrolled contract exchanges operate so as to prevent or avoid injury to other water rights. This class of exchanges, however, was created to grandfather pre-existing exchanges, and a water user injured by another's exchange could seek to have it enjoined. To operate a notice exchange, one simply files a notice that the exchange will take place. DWR must approve the notice prior to operation of the exchange. The exchange may be operated only on the conditions that it will not affect vested rights to water and that it will not unreasonably increase damage to other land owners or water users. To obtain a permitted exchange an applicant must demonstrate that the exchange "will not affect vested rights to water," which do not appear to include other exchanges. Permit exchanges involve the highest level of State involvement, but permits must only be obtained for exchanges in which the exchanger is giving surface water other than Colorado River water. Finally, three "storage and recovery" programs providing for obtaining aquifer recharge credits to offset groundwater pumping, were repealed and replaced in 1994 by the Underground Water Storage, Savings and Replenishment Act.

California

Although several California statutes make passing references to water exchanges, there is no clear authority for their sustained use and no significant history of their use, probably due to a variety of factors. Originally a riparian state, California changed to a permit system in 1914 with the adoption of the Water Commission Act. There is no statute that defines the term "exchange" as used in California, or which sets forth standards or criteria which must be met in order to operate an exchange.

There are a variety of statutory provisions, however, which come close to authorizing the type of exchanges which are so prevalent elsewhere in the west. For example, California expressly allows the use of a natural channel for conveyance of water, and refers to the recapture of such water as "reclamation." This provision is probably the authorization for and the codification of the results in various judicial decisions. Similar authority exists in the specific instance of a political subdivision discharging effluent into the San Joaquin River. The discharger may obtain a permit to "appropriate" an equal amount of water, less transit losses, again at a downstream location. A number of other provisions make off-hand references to exchanges, but the context frequently gives the impression that such exchanges are not operated with any regularity. For example, surface or ground water saved through the use of reclaimed water can be "sold, leased, exchanged or otherwise transferred." Regarding the Central Valley Project, a statute forbids the construction or operation of a water project by the state which involves an exchange which would remove water from a watershed "unless the water requirements of the watershed or area in which the exchange is made are first and at all times met and satisfied to the extent that the requirements would have been met were the exchange not made, and no right to the use of water shall be gained or lost by reason of any such exchange."

As in a number of other western states, it may be possible to establish an exchange through the transfer or change of an existing water right. It is, after all, the policy of California to "facilitate the voluntary transfer of water and water rights...." With one exception, however, California statutes do not expressly address the use of change or transfer proceedings to effect an exchange. Exchanges are expressly mentioned only in the context of "temporary" changes; apparently the mechanism for a permanent exchange between agricultural and municipal users would be a change of the agricultural right coupled with a change in place of use of the municipality's effluent.

As with its statutes, California cases refer to exchanges but none deal squarely with the right to exchange, the conditions thereon, or whether a priority may be established for an exchange. The case perhaps coming the closest to defining such requirements is Big Bear, dealing with the interpretation of an agreement designed to keep an irrigation reservoir full for the benefit of surrounding homeowners.

Some of the most infamous exchanges in California are those developed by the Bureau of Reclamation to allow construction of Friant Dam on the San Joaquin River as part of the CVP. Among these are the Miller & Lux Purchase and Exchange Contracts which were a frequent subject of litigation in the 1950's and since. The substitute supply under the Miller & Lux exchange contracts is placed in the San Joaquin River at the Mendota Pool. Some Miller & Lux lands, however, were located upstream of this point, requiring the court to wrestle with the question of what "physical solution" could be developed to provide an adequate amount of water to the upstream rights. The seeds for the line of cases discussing physical solutions were sown in 1928, when California amended its constitution to state, in part, that a water right "does not and shall not extend to the waste or unreasonable use or unreasonable method of use or unreasonable method of diversion of water." Several cases in the mid-1930's interpreted this amendment to mean that "it is not only within the power, but it is the duty of the trial court, to work out, if possible, a physical solution, and if none is suggested by the parties to work out one independent of the parties."

Physical solutions have been described as "the application of general equitable principles to achieve practical allocations of water to competing interests so that a reasonable accommodation of demands upon a water source can be achieved" and also as "a means of avoiding water waste without unreasonably or adversely affecting the rights of the parties." Perhaps part of the reason that California's statutes say so little about exchanges is because the courts already have a duty to develop physical solutions wherever possible as a means of preventing waste. Although a physical solution may consist of an exchange, such solutions are not limited to exchanges. Additionally, whereas most exchanges are carefully quantified in terms of timing, amount and location of diversion and replacement, the California courts have taken more of an open-ended, results-oriented approach to physical solutions.

Despite the ambiguity of California statutes and case law, it is apparent that exchanges do operate in the state. A California state court has upheld the use of an exchange to provide water of an adequate quantity and quality to riparian water users, while observing that riparians' rights to a specific quality of water are not unlimited. Since 1974, the City of Fresno and the Fresno Irrigation District have had a contract which allows the district to pump water from under the city's wastewater treatment plant's spreading basins in exchange for the city's river diversions of half the amount pumped by the district. Municipal providers in northern Orange County operate a substantial groundwater recharge plan under which river water and municipal effluent are injected for later withdrawal.

Colorado

Although exchanges are now said to be "common" in the state, Colorado's General Assembly was slow to focus specifically on exchanges, waiting almost twenty years after establishing procedures for water right adjudication and administration. In the meantime, as early as 1893, water users had discovered the utility of exchanges which were soon protected by the Colorado Supreme Court, in the absence of unlawful injury and without benefit of statute. Nevertheless, for about 100 years courts were without jurisdiction to decree exchange priorities in general adjudication proceedings.

Exchanges work best on tightly regulated and over-appropriated but well-watered stream systems. Nowhere is this more apparent than in Colorado, a state which has had dramatic post-WWII population increases and which is infamous for its east-west water feuds across the continental divide. It is said that seventy percent of the population is now on the eastern slope while seventy percent of the water remains on the western slope. Not surprisingly, exchanges became common-place only after the 1940's and appear in force only on the eastern slope. As of July, 1992, the State and Division Engineers had tabulated 601 decreed exchanges. Of those, approximately 98% (589) are on the eastern slope, particularly on the South Platte which flows through the Denver metropolitan area. Of those, 96% were adjudicated after 1970. If anything, the tabulated number of exchanges substantially understate the number of documented exchanges. For example, those decreed exchanges which take place entirely within a ditch system do not appear to be tabulated. Exchanges which have not been decreed, but have been administratively approved by the State Engineer as substitute supply plans, are clearly missing. Finally, decreed exchanges which are difficult or impossible to tabulate have been ignored. The Colorado Water Court, of course, is not an essential stop for aspiring exchangors. Whether the court is involved or not, the State Engineer is responsible for exchange supervision. His administrative review of substitute supply plans (temporary exchanges) has increased dramatically in recent years, from a fairly constant annual level of 35 to 55 plans during 1984-88, to approximately 100 and 200, thereafter. Indeed, many of engineer-approved exchanges never see the steps of the water courthouse, e.g. the major substitute supply plan of GASP.

Exchanges were first addressed legislatively in 1897 when the General Assembly specifically authorized the exchange of imported water for an equivalent amount of native water and provided for exchanges between reservoirs and ditches. Apparently reflecting then prevailing practices on the Poudre, those provisions remain virtually unchanged today. In 1899 and as part of establishing a procedure for changing points of diversion of decreed rights, "owners of ditches and water rights" on the same stream were empowered "to exchange with, and loan to, each other, for a limited time, the water to which each may be entitled...." This provision has been said to authorize the practice of rotation or doubling up of water and also remains on the books today. Shortly thereafter, in a 1905 opinion resolving a case from the Arkansas River, the Supreme Court held that the statute applied to "exchanges and loans of water for irrigation purposes only," that exchanges and loans might be made only in the absence of injury to other water rights, and that the burden of demonstrating the lack of injury rested squarely on those making the exchange.

Following the 1897 and 1899 Acts, the General Assembly did nothing about exchanges for seventy years. During that time, however, the courts addressed them in a variety of ways, including: requiring junior priority owners in a reservoir to provide a substitute supply as well as substitute delivery facilities to a senior in the same reservoir whose rights were adversely affected by the operation of the junior priorities; protecting a water commissioner from being required "to correlate or compile for [the operator of an exchange] the exchange and storage records" which he maintained; protecting an internal system of exchanges within a ditch system; regarding diligence in the appropriation of water rights on separate tributaries for different projects, holding that their eventual cooperative uses in exchanges was an insufficient basis for crediting work on one project to another; recognizing that exchange itself formed the basis of beneficial use for which a priority could be awarded; vacating an injunction against the enforcement of State Engineer groundwater regulations for the South Platte which, inter alia, provided for the replacement of well depletions by exchange; entering declaratory judgments regarding the validity of exchange agreements; preventing the further proliferation of pro se lawsuits arising out of a plethora of water right disputes, including the exchange of gunfire; disapproving the use of water salvaged by phreatophyte eradication as a source of substitute supply in an exchange said to be free of the river's call; protecting an exchange from injury in a change proceeding for other water rights; including exchanges within the "right of disposition" of imported water; adjudicating storage rights based on reservoir fillings by exchange; extending the broad protections of "inquiry notice" to exchange applications; not only holding that the operation of an exchange, pursuant to an agreement with a reservoir operator, could be the basis of a second filling decree in the reservoir by the beneficiary of the exchange, but also holding that the negotiation, execution, and payment under that agreement constituted the specific overt act necessary to establish the appropriation of the refill right; and requiring the satisfaction of contractual requirements for permission to implement exchanges as a condition precedent to seeking their adjudication.

In 1969, as part of a massive revision and restatement of Colorado water law, the legislature made some significant strides in the substantive law of exchanges. Although the State Engineer has always had broad supervisory powers over the distribution of Colorado water and enforcement of its water laws, the considerable authority he exercised over exchanges was largely inherent in his larger duties. In 1969, the State Engineer's authority over exchanges was either enlarged or simply made specific, depending on one's point of view. He was authorized to allow out-of-priority upstream storage, subject to later release for the benefit of unsatisfied downstream seniors -- the most notable examples being the "Gentlemen's Agreement on the South Platte" and "top to bottom" administration of Poudre basin reservoirs. Under this statutory provision the engineer's latitude in administration was later judicially protected even to the extent of requiring that the State and Division Engineers be notified in advance of a non-simultaneous exchange, particularly when the substitute supply was in the form of an entry in an "owe-the-river" account. In the same bill, a broad spectrum of exchanges (providing a "substituted supply of water") were specifically authorized, apparently without requiring the permission of downstream seniors, and courts were given jurisdiction to confirm the exchange, jurisdiction which previously had been technically lacking but sometimes simply assumed. Encouraging the exercise of exchanges "to the fullest extent possible" and denominating an exchange as an "appropriative right" which might be adjudicated, the legislature nevertheless required that substituted water "shall be of a quality and continuity to meet the requirements of use to which the senior appropriation has normally been put," although the Colorado Supreme Court later opined that the substituted water may be devoid of formerly beneficial silt. Further recognizing the potential of exchanges, the legislature contemplated their use in connection with imported or foreign water in a provision which has been interpreted as requiring no change decree for the water rights producing the foreign substitute supply, although a water conservancy district's project water may not be exchanged upon absent permission.

Also in 1969 the General Assembly enacted a substantial change in water right adjudication and administration procedures, commonly referred to as S.B. 81, the "Water Right Determination and Administration Act of 1969," or as simply the "'69 Act." Exchanges were included in the 1969 Act, only insofar as they were part of a "plan for augmentation." While the legal and practical distinction between exchanges and plans for augmentation is obscure, what S.B. 81 made clear was that, once an exchange became part of an augmentation plan, the exchange would be reviewed by the Water Court, using a standard of non-injury and imposing terms and conditions required to prevent that injury. The substitute supply of an exchange incorporated into an augmentation plan apparently had to meet slightly different standards than an exchange which stood alone. In 1969, however, it was not entirely clear from the statutory language that an exchange could be the sole subject of a Water Court application to obtain a priority.

In 1981, the ability to adjudicate exchanges was made certain. "Approval of proposed or existing exchange of water" was expressly included in the matters for which Water Court applications could be made. Furthermore, although exchanges had been considered to be appropriative water rights at least since 1969, subject to the legal requirements for the initiation of an appropriation, operating exchanges were allowed to be decreed with their original "priority date." The effect of the 1981 legislation, clarifying the distinctive nature of an exchange, was several-fold. In appropriating stand-alone exchanges (i.e., a priority to use the "exchange potential" through an exchange reach), one must be concerned about establishing both the elements of an appropriation and the historically-required absence of injury resulting from the exchange. There is, however, no mandatory retained jurisdiction in the Water Court to review future injury, that protection falling to the State and Division Engineer. Finally, municipal and, presumably, irrigation return flows may be used as a substitute supply.

In 1989 came yet other substantive legislative pronouncements concerning substitute supplies for gravel pit evaporation as well as exchanges by districts and political subdivisions. Regarding the calculation of substitute supplies for gravel pit evaporation, no replacement is required for exchanges operating by mid-1989 and historic depletions from the original vegetation need not be included in the substitute supplies for subsequent exchanges. Conservancy and conservation districts, together with other public entities, now may enter into exchanges even beyond district boundaries.

Also in 1989, the General Assembly amended the Water Quality Control Act to clarify the duties of the Water Quality Control Commission, the Water Quality Control Division, and various "implementive agencies," including the State Engineer, in adopting and enforcing water quality standards and classifications. On August 30, 1990, the State Engineer together with the commission and division executed a Memorandum of Agreement concerning the relationship of their water quality responsibilities. In February, 1992, after extensive public hearings, the State Engineer issued "Senate Bill 89-181 Rules" which became effective on March 30, 1992, and were accompanied by an explanatory "Statement of Basis and Purpose."

Idaho

Voluntary river exchanges are authorized by statute, recognized by case law, and regularly practiced in Idaho. Administrative approvals of exchanges are currently obtained pursuant to the standards and procedures relating to new appropriations and to changes of water rights. In general adjudications, judicial approval may be obtained of pre-existing or "defacto exchanges." Groundwater exchanges or recharge programs are specifically authorized but seldom practiced. Operation of exchanges imposes the usual difficulty on water administration officials: (1) the determination that substitute supply is actually getting to the downstream user and (2) timing problems.

As in most of the western states which embrace exchanges, the central issue in Idaho is whether the operations of an exchange will injure other water users. This appears to be true whether the exchange is addressed judicially or administratively. Indeed, the priority date of exchanges may be adjusted to alleviate such injury.

Idaho imposes significant limitations on the quality of substitute supply. With respect to the administrative approval of exchanges involving unappropriated and already appropriated substitute supply, "local public interest" is one factor for consideration and includes water quality issues. Additionally, the applicable regulations proscribe exchanges in which the quality of the substitute supply made available to the existing right is "unusable for the purposes of the water right, and the water cannot be restored to usable quality without unreasonable effort or expense."

Montana

Although uncommon, exchanges are authorized by Montana statute under a basic exchange provision, if a land owner seeks to irrigate his or her land which is susceptible of irrigation from a stream but which stream is diminished in flow due to prior appropriators, the land owner may divert water from the stream and provide stored water in exchange. Despite the statutory language, requiring substitute supply to be released from reservoir storage, at least one exchange reportedly utilizes substitute supply from a well, while the Montana Supreme Court allowed an irrigation exchange using canal water as substitute supply under the previous codification of the statute. Similarly, while the statute authorizes exchanges for irrigation purposes only, a prospective exchange is anticipated for a superfund site. These inconsistencies between the statutory provision and actual practice are probably explained by the practice of authorizing exchanges under the same process which is used for changes of water rights rather than under the basic exchange statute. In addition to the basic exchange statute, an irrigation district may contract with the owners of water rights to exchange their water for that of the district.

Nebraska

Exchanges are not often practiced in Nebraska. Primarily due to the abundance of water and the lack of regulation of groundwater, water users have not found it necessary to invent any creative exchanges. In the eastern part of the state, much of the water law addresses getting rid of water. To the West, when there is a scarcity of surface water, water users can simply drill a well in most instances. Consequently, there has been no reported case law regarding exchanges. Interestingly enough, however, there is statutory authority allowing a classic exchange either upstream or downstream from a surface or underground reservoir, but no reported cases describe any instances where the statutory authority was employed.

Nevada

Although Nevada statutes do recognize the practice of rotation within ditch systems and between ditches or water rights with different priorities, the state engineer is said to not interpret rotation as including an exchange. In spite of the fact that reservoir releases may be rediverted from the receiving stream, the state does not statutorily recognize exchanges. If they are to be approved at all, exchanges must proceed under the statutory process for changing water rights. Nevertheless, exchanges are beginning to have a role in the flexible use of Nevada water, although their documentation is scant.

Ten years ago a statutory framework was enacted creating a permit procedure for artificial recharge projects to recover stored water. Holders of a permit for a project and a permit for a recovery well may use or exchange water recovered pursuant to those permits only in the manner in which it was permissible for the permittee to use that water before it was stored. Other examples of exchanges include Newmont, a mining company in the northern part of the state, which has a project that allows filling of an upstream reservoir out of priority, then water from the mining operations is released to irrigators downstream, who take water on a direct flow basis from surface diversions, in lieu of their pumping groundwater. In a non-simultaneous exchange, the Mohave Power plant has in essence contributed to a water bank, by foregoing its present entitlement to Colorado River water, which entitlement was due to expire in 2006. For twenty years thereafter, the power company may withdraw water from that bank. In addition, Las Vegas and other Nevada municipalities increase their Colorado River diversions in the amounts of credits which the city receives for its municipal return flows to the river. Needless to say, water users downstream on the Colorado River in Arizona and California are not particularly pleased by the quality of that substitute supply even though the effluent is claimed to be cleaner than the water already in the river.

New Mexico

In New Mexico, exchanges are expressly authorized by statute and recognized by case law. Moreover, critical to water quality of exchanges by municipalities, some New Mexico case law and statutory authority appears to allow municipalities to reuse their waste water effluent, even when it is attributable to water tributary to the receiving stream.

As a practical matter, however, there have been few instances where the actual exchange statute has come into play. For example, it is reported that to ensure the protection of water right holders in municipal effluent situations the State Engineer will condition the authorization to divert upon the release of a certain quantity of effluent. Consequently, the permit for appropriation of the municipal water supply will have, in essence, a built-in exchange of the diverted water for the effluent discharged by the city.

The New Mexico statutes and State Engineer regulations do not address the quality of the substitute supply, although by judicial decision the recipient of a substitute supply is not entitled to the maintenance of the silt content of his original supply. It is also reported that, while land application of municipal effluent has been proposed in New Mexico, the practice has been discouraged by the State Engineer's office unless replacement water is dedicated to offset any depletions of return flow to the stream system.

Oregon

Oregon recognizes and regulates water right exchanges. The statutes relating to exchanges, however, do not explicitly address the water quality of the substitute supply and there appears to be no case law on this issue. By statute, the process for confirming an exchange allows the State to consider whether: (1) the proposed exchange would adversely affect other appropriators; (2) the proposed exchange would be too difficult to administer; (3) the proposed exchange would adversely affect the public interest; and (4) a sufficient quantity of replacement water (i.e., substitute supply) is available. Whether an exchange adversely affects the public interest is determined by reference to statutory standards. Based upon this authorization, the State considers the water quality effects of the exchange, reportedly including: whether the exchange will alter the dilution capability of a stretch of the stream and whether the substitute supply will alter the water temperature. Oregon has apparently only recently discovered the use of groundwater in exchanges. 1995 legislation provided for permits to appropriate artificially-recharged ground water, for "Aquifer Storage and Recovery" test programs and permits, and for an "owner of a surface water use subject to transfer" to transfer his diversion to "an unconfined aquifer hydraulically connected to the authorized surface water source."

While treated municipal effluent may be used for irrigation, it reportedly will not be considered as a source of substitute supply for an exchange in the classic sense. Compliance with the water quality regulations does not create a water right, nor does the use of the water for irrigation enable the municipality to take any water under an existing water right permit out of priority. However, the use of reclaimed water (e.g., treated municipal effluent) in lieu of water available under an existing water right permit will not be considered as non-use of the water right permit, which is subject to forfeiture for five successive years of non-use. In addition, the state reportedly will not require a change of water right, even though water diverted for municipal use is now being used for irrigation.

Utah

Aside from Colorado, Utah has the most active exchanges of any western state. All the factors which encourage exchanges are present: Utah is an arid state, with significant but over-appropriated rivers, and with population concentrated in one metropolitan area. Although exchanges were recognized by the state's common law, they are currently authorized under three statutory schemes. Traditional exchanges (involving "natural stream, body of water or reservoir") have operated pursuant to statutory authority originally enacted in 1897. In 1933, groundwater replacement or exchanges were authorized. Finally, in 1991, the Groundwater Recharge and Recovery Act was enacted.

Traditional exchanges have been popular throughout Utah, particularly with cities in Salt Lake County, in which 40% of Utah's population resides. In perhaps the earliest examples of water quality exchanges, those municipal providers have purchased water rights from canal companies and have exchanged rights to relatively low quality Utah Lake water for high quality, potable water from the Wasatch mountain streams east of the metropolitan area. Between 1980-1987, 874 exchange applications were filed, with the number of exchange filings reportedly remaining fairly constant each year. Not surprisingly, over 80% of all exchange applications were filed in the Ogden/Weber River Area, apparently as a result of both population growth and limitations on new appropriations.

Under the traditional exchange statute as it now exists, exchanges must be approved by the State Engineer, and are operated "for the purpose of preventing waste and facilitating distribution," are assessed transportation losses, must deliver a substitute supply in an amount and quality appropriate "for the purpose used," and must bear any increased costs incurred by others as a result of exchange operations. The State Engineer may require reports from exchange operators and may lapse the exchange under certain conditions.

The quantity and quality of the substitute supply are significant issues in Utah. Even without the 1897 statute, an analysis of the substitute supply was a significant aspect of the injury analysis. Indeed, without reference to the statute, the Utah Supreme Court approved the first water quality exchange reported by case law in any western state. In 1905, the court found that Salt Lake City could lawfully exchange low quality irrigation water, pursuant to a contract with the irrigators, for better quality mountain water.

In the ensuing decade, before State Engineer approval was required for exchanges, the court held that the operator of an exchange could not be held in contempt for operating an unadjudicated exchange, that an exchange is entitled to protection as a water right, but that the substitute supply must maintain the historical quantity and quality.

In 1919, the exchange statute was amended to require application to and approval by the State Engineer of any exchange. Shortly thereafter, the Utah Supreme Court affirmed the State Engineer's approval of an around-the-horn exchange whereby water was diverted upstream from a tributary of the Lake Fork River and the substitute supply was diverted from another river and put directly into 1) a canal with a senior priority to divert water from the West Fork of Lake Fork, and 2) back into Lake Fork Creek above the headgate of another senior canal. In so doing, the court was one of the first to approve the delivery of substitute supply directly to a canal, rather than to the stream above its headgate. The court affirmed the no-injury rule, of course, including the requirement that the substitute supply maintain the original's quality and quantity. In addition, the court established that the recipient's resulting inability to change his point of diversion was not the type of injury which would preclude the exchange and that the exchange could be non-voluntary, i.e. the recipient of substitute supply need not agree to the exchange.

Although exchanges may be involuntary, it is important to note that many reported Utah exchange decisions involve agreements between the operator of the exchange and the recipient of the substitute supply. In addition, decisions have been entered interpreting such agreements concerning the amount of substitute supply to be provided and confirming that a ditch company itself, without the approval of all its shareholders, may enter into exchange agreements. Other decisions note with approval non-simultaneous exchanges, suggest that adequate measuring devices and controls must be provided for exchange operations, and that exchanges themselves may be protected from injury from other exchanges.

The quality of substitute supply has been a hotly litigated issue, resulting in inconsistent results in the Utah Supreme Court. Two opinions, one in 1930 and one in 1947, suggest that the substitute supply cannot deteriorate the quality of the receiving stream at all. Two others, in 1943 and 1954, adopt the less stringent statutory requirement that there can be no deterioration of the quality of water but only "for the purpose used" by the recipient. The last case, focusing only on the quality of water appropriate for the recipients beneficial use, seems to interpret prior decisions as being perfectly consistent with the approach most recently adopted.

Utah exchanges include groundwater. The statutory authority for "replacement" of groundwater in Utah grants the right of replacement to junior appropriators of underground water when their appropriations may diminish the quantity or injuriously affect the quality of senior appropriators of underground water. A written application to, and approval by, the State Engineer is required to exercise the right of groundwater replacement, which must be accomplished at the applicant's sole expense and subject to such rules and regulations that the State Engineer may prescribe. These rights of replacement appear conceptually similar to plans for augmentation in Colorado. Nevertheless, contrary to Colorado's approach, in 1959 the Utah Supreme Court initially held that the statute must be strictly construed and refused to require the senior recipient to maintain a reasonable means of diversion before being entitled to replacement water from the junior groundwater users. Ten years later, however, the court adopted the rule of reasonableness.

The Groundwater Recharge and Recovery Act of 1991, provides unique opportunities for creative exchanges by authorizing the recharge and recovery of water from aquifers, based on application to, and permit issued by, the State Engineer. Either independently or arguably as a component of the groundwater replacement provisions, it is clear that exchanges are envisioned by the new act since a person who holds a recovery permit may use or exchange water only in the manner in which the water was permitted to be used or exchanged before the water was stored underground, unless a change or exchange application is filed and approved. Water quality is to be considered in the application process by the state engineer under this type of plan. The approval of a recharge permit is subject to the state engineer finding, among other things, that the project will not adversely affect the water quality of the aquifer. Additionally, in connection with the operation of such a project, an applicant must file reports with the state engineer concerning the water quality of the recharged water, receiving aquifer, and recovered water.

Washington

Traditional exchanges are recognized neither by Washington statute or case law. Instead, "interties" between public water systems serve roughly the same function today and Colorado-style plans for augmentation are reportedly expected in the future. Interties are "interconnections between public water systems permitting exchange or delivery of water between those systems...to serve as primary or secondary sources of supply but do not include development of new sources of supply to meet future demand." They could be approved by the Department of Ecology for use beginning in 1991 after review by the Department of Health. Though the intertie statute was only recently enacted, it reportedly is already being relied upon by Seattle and Tacoma. Each of the cities has agreed to transfer water by pipeline to the other, when it does not need it for its own use.

Wyoming

Exchanges are not only allowed but actively encouraged by Wyoming state policy. By statute, exchanges may operate only in accordance with the order of the State Engineer and are authorized under those conditions in which exchanges make practical sense, using "any combination of direct flow, storage and groundwater rights." Although Wyoming exchanges of previously-appropriated water typically involve reservoir releases as substitute supply or "make-up water", there have been exchanges involving direct flow appropriations.

Since the creation of its Department of Environmental Quality (DEQ), Wyoming has not been required to deal expressly with the question of the quality of substitute supply in the context of an exchange. There is, however, a statutory requirement of "equality of water exchanged," which appears to apply to the similarity of uses of the exchange appropriations and the quantity rather than the quality of the substitute supply, and for which there is no explanatory provision in the State Engineer's regulations. This is not to say that the comparative quality of substitute supply could not become an issue at a future date, as it has with Wyoming's southern neighbor.