Water Rights and Siting Power Plants

Paul J. Zilis and Christine L. Knight
Vranesh & Raisch, LLP
Boulder, Colorado

(Note: Vranesh & Raisch, LLP, recently provided legal counsel on water rights issues and acquired water rights for the developer of a new power plant in Colorado.)

Water is clearly a critical component in the successful operation of a power plant. In contrast to eastern states operating under riparian rights, most western states operate under the appropriation doctrine of water rights, which can best be described as "first in time, first in right." In times of shortage, the water rights with the oldest priority dates, known as senior water rights, are allowed to divert water while diversions under junior water rights are curtailed. Power plants must operate within this priority system and water rights must be secured for successful plant operation. While western states differ in how water rights are obtained, they are necessary in all western states to divert water and to protect power plant water sources from future upstream water development which could decrease the amount of available water.

Unfortunately, because water is a precious commodity in the arid West, direct flow water rights in major rivers are rarely available for ready appropriation. In fact, most western water bodies are fully appropriated; that is, all available water rights are already fully vested in other water users. In fact, many are over appropriated, such that many water users holding junior rights are not guaranteed their water rights, but only receive them at those times when extra water is available. Each western state utilizes different systems within the appropriation doctrine. This article addresses the system used in Colorado as an example.

Although extant water rights are sold on the open market, opportunities are scarce and volume frequently insufficient. Instead, most new water users must undergo the more complex process of obtaining junior conditional water rights, or providing an augmentation plan whereby they are entitled to divert water out of priority.

A conditional water right provides a means of ensuring one's place in the appropriation system prior to the time that a project is completed. Typically, the developer identifies a source of water available for appropriation under certain conditions. For example, if water could be stored in a reservoir during spring runoff, it would then be available for use during the remainder of the year. To obtain a conditional right to this water, several steps must be taken. First, a developer must establish an intent to appropriate the water. This is typically done through the issuance of a resolution. The developer must then make that intent publicly manifest, by staking the proposed site, or placing notices in a newspaper. An application must then be filed in the proper water court, in which any person can object to the application. If a conditional water right is ultimately awarded, it acts as a "placemarker" in the prior appropriation system. Even though the water may not actually be put to beneficial use for some time, the developer's water right will relate back to the date when intent was manifested. See, e.g., Board of County Comm'rs v. Crystal Creek Homeowners' Assoc., 14 P.3d 325 (Colo. 2000).

However, because such a guarantee invites speculation, Colorado imposes an "anti-speculation" or "can and will" doctrine, requiring that the developer provide the court with some sort of proof that it "can and will" put the water to a beneficial use within a reasonable amount of time. See, e.g., City of Thornton v. Bijou Irrigation Co., 926 P.2d 1 (Colo. 1996). Moreover, the user must provide periodic proof that it is indeed proceeding with due diligence. For a power plant developer, the "can and will" statute might be fulfilled by studies showing, for example, that sufficient water is available, that diversion of the water and construction of the plant is technically feasible, that the company has the capability to acquire necessary permits, and that sufficient potential contracts for purchase of electricity exist, such that the proposed endeavor has a reasonable chance of success.

To the extent that a power plant is a non-consumptive water user, and an unappropriated source of water exists, a conditional water right alone may be sufficient to fulfill its needs (a hydroelectric plant is generally considered to be a non-consumptive water user; after passing through turbines, water continues its course downstream unimpeded). However, it is likely that developers would additionally need to develop an "augmentation plan" to ensure reliable water rights for a power plant project. See Section 37-92-102 (2)(c), Colo. Rev. Stat. An augmentation plan allows a hydropower operation to divert water out of priority and replace those diversions with either senior water rights, or with water which is not connected to the river system, such as non-tributary groundwater. However, this replacement water must be returned to the river with consideration for the amount, place, and timing of return, such that no senior water user suffers material injury (no-injury rule).

Augmentation plans are usually required to replace consumptive uses of water. For instance, evaporation from a reservoir must be replaced if water is stored out of priority. Likewise, releases from the power plant can be augmented if the timing of those releases do not make sufficient water available for downstream senior water users.

Anyone considering the development of a power plant in the West needs to give careful consideration to their water needs, the water that may be available, and the means by which rights to that water can be obtained. Although water is still available for appropriation, acquiring a valid right to that water often requires a comprehensive and creative plan employing several different strategies. A water rights attorney should be a member of the legal team siting a power plant in western states.