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Arizona Supreme Court Addresses Whether Unquantified Federal Reserved Water Rights Must be Considered in a Designation of Adequate Water Supply

In August, the Arizona Supreme Court, in a 4-3 decision, issued a ruling affirming a conclusion by the Arizona Department of Water Resources that there is an adequate water supply for a proposed development in Cochise County.

Castle & Cook, Inc., has proposed to construct approximately 7,000 residential and commercial units on 4,800 acres of land near the San Pedro River. Pueblo Del Sol Water Company (“Pueblo”), which is owned by Castle & Cook, calculated that groundwater pumping would increase from 1,430 AF/year to 4,870 AF/year to meet the needs of the development. Pueblo filed an application with ADWR for an adequate water supply designation, and ADWR issued a determination in 2013 that there is an adequate water supply to accommodate the additional 3,440 AF/year of pumping. The U.S. Bureau of Land Management (“BLM”), along with two private individuals, who have affiliations with environmental groups in the region, appealed ADWR’s designation.

At issue is BLM’s federal reserved water right for the San Pedro Riparian National Conservation Area (“SPRNCA”). When Congress created the SPRNCA in 1988, it also created an accompanying federal reserved water right and directed the Department of the Interior to “file a claim for the quantification of such rights in an appropriate stream adjudication.” The claim is pending in the Gila River General Stream Adjudication, which has been in litigation for nearly 30 years, so BLM’s claim remains unquantified. In addition to its federal reserved water rights, BLM has state surface water rights. The plaintiffs in this case claim that that “the increase in Pueblo’s groundwater pumping would affect the flow of the San Pedro River and would therefore conflict with BLM’s federal reserved water right.”

An adequate water supply designation requires an applicant to meet a burden of demonstrating that water would be continuously, legally, and physically available. An administrative law judge agreed with ADWR in its determination that Pueblo had met that burden. The superior court vacated ADWR’s decision, stating that “ADWR was required to consider potential and existing legal claims that may affect the availability of the water supply, including BLM’s unquantified federal water right.” The appellate court disagreed holding that the superior court erred in requiring ADWR to consider BLM’s unquantified water right, but also argued that “ADWR ‘must use its knowledge and expertise’ and apply its ‘educated eye as to what the Gila Adjudication may eventually determine to be BLM’s water right’ to consider the impact of BLM’s unquantified water right on Pueblo’s water supply.” All the parties petitioned for review by the Arizona Supreme Court.

The Supreme Court vacated the superior court and appellate court decisions and affirmed ADWR and the administrative law judge’s approval of the application, ultimately allowing the proposed development to move forward.

In its analysis, the court addressed the difference in how surface water and groundwater are treated under Arizona law and the requirements of physical and legal availability under the adequate water supply regulation.

The court noted that Arizona law distinguishes between groundwater and surface water, even if the they might be hydrologically connected. Surface water is subject to the doctrine of prior appropriation, while that laws grants overlying landowners the use of groundwater, subject to the doctrine of reasonable use. In addition, both groundwater and surface water are subject to federal reserved water rights doctrine, which states that when the federal government reserves land for a purpose, it also reserves sufficient water rights for that purpose. “The federal reserved water rights doctrine applies to groundwater, but only ‘where other waters are inadequate to accomplish the purpose of a reservation.’”

The court then turned to a discussion of the adequate water supply designation process, which has two requirements: 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 developer must have the financial capability to construct the necessary infrastructure.

Drilling down on the physical availability condition, the court noted there is a two-prong test to meet the physical availability requirement.

  • “[T]he groundwater must be withdrawn ‘from wells owned by the applicant or the proposed municipal provider that are located within the service area of the applicant or the proposed municipal provider;’” and
  • “[T]he groundwater must be ‘withdrawn from depths that do not exceed the applicable maximum 100-year depth-to-static water level.’”

The court notes that the plaintiffs concede that Pueblo passed both tests and that BLM did not challenge ADWR’s finding of physical availability.

The crux of the cases hinges on the legal availability requirement. Plaintiffs and the dissenting justices argue that state law requiring a proposed development’s water supply “to satisfy the water needs of the proposed use for at least one hundred years” means that ADWR is required to consider BLM’s unquantified federal reserved water right. The court disagrees pointing out that state law provides that “a private water company (such as Pueblo) has a ‘legally available’ supply of groundwater when it possesses a [Certificate of Convenience and Necessity (“CC&N)],” which Pueblo has.

The court also discusses the interpretation of “legally available,” noting that it is ambiguous regarding unquantified federal reserved rights because the relevant state law has no mention of federal reserved rights and does not define “legally available.” As such, the court turns to history which shows that the legislature left the definition of adequate water supply and its elements to ADWR. “[W]hen the legislature amended [state law] in 2007 to define adequate water supply, it adopted the same three elements—physical, continuous, and legal availability—without defining them. These concepts are unique to ADWR’s adequate water supply regulations. And any contention that the legislature was unaware of ADWR’s definitions of physical, continuous, and legal availability falls flat.”

Further argument includes a claim that “obtaining a CC&N is essentially a pro forma process that ‘tells us absolutely nothing about the legal availability of water.’” The court rejects this claim, stating that it is “wrong to discount the CC&N’s procedural and substantive rigors.”

Finally, the court addresses a claim that considering BLM’s unquantified federal reserved rights serves a consumer protection purpose. The court states that it does not. First, they highlight that case law disfavors consideration of the unquantified federal reserved right. They also note, “The adequate water supply designation process originated in the 1970s as a mechanism for protecting consumers against unscrupulous developers who sold subdivided property that lacked a water source.”

Ultimately, the court concludes that state law does not require ADWR to consider unquantified federal reserved water rights when analyzing physical or legal availability.


Written by Marta L. Weismann