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February 13, 2024  |  Written by Maximilian C. Bricker

Idaho Court Rules that State-Operated Water Banks can Subordinate Water Users’ Storage Rights as a Condition of Participation

Background

The Snake River rises in northwest Wyoming and crosses into Idaho near Heise, ID. In Idaho, Water District 01 (WD01) administers water rights, including storage rights, in the area known as the “Upper Snake River Basin,” spanning roughly from Twin Falls, ID, north and east to the state line. There is more than 4.0 million acre-feet of reservoir storage space within WD01, as shown below.

Source: https://www.usbr.gov/pn/hydromet/burtea.html (last viewed Feb. 6, 2024).

Since roughly 1919, eastern Idaho interests have operated a water bank (WD01 Rental Pool) to facilitate the renting of storage water from Upper Snake reservoirs amongst water users. The “Committee of Nine” (a group of spaceholders in the Upper Snake reservoir system) has managed the WD01 Rental Pool since its inception, and in 1979 was finally officially authorized to do so, when the state Legislature enacted legislation that created the “Water Supply Bank.” In carrying out its water banking goals, the Committee of Nine has annually adopted Rental Pool Procedures (Procedures), which govern the rentals of storage water in WD01. Procedure 7.5 (LTF Rule) makes spaceholders’ storage space “last to fill” in the following year, regardless of the storage right’s decreed priority date, if the spaceholder leases its storage water to another water user.

The City of Pocatello (“Pocatello” or “City”) holds a contract with the United States Bureau of Reclamation (Bureau) for 50,000 acre-feet of storage space in Palisades Reservoir. The City’s space is within the 940,400 acre-feet storage right held by the Bureau with a 1939 priority date. The Bureau’s storage right was decreed in the Snake River Basin Adjudication for “irrigation” uses within the entirety of WD01. However, Pocatello’s contract authorizes it to “rent” its storage water to “mitigate” ground water pumping, rather than take delivery of the storage water, and historically the City has exclusively rented its storage water or otherwise made it available for mitigation purposes.

Pocatello’s Lawsuit

Because the City has historically used its storage water by renting it for mitigation purposes, the City has long been impacted by, and objected to, the LTF Rule. On March 16, 2023, Pocatello filed a Complaint in Idaho District Court against various State of Idaho interests (the State) seeking to: (1) void the Procedures in their entirety because the State failed to comply with the rulemaking requirements of the Idaho Administrative Procedure Act (APA); (2) void the LTF Rule, as facially unconstitutional, because by applying it the State administers lessor-spaceholders’ storage rights in contravention of the priority system; and (3) recover damages because the State’s application of the LTF Rule resulted in a “taking” of Pocatello’s storage right without just compensation.

Pocatello and the State filed cross motions for summary judgment and participated in oral argument on November 30, 2023. On January 10, 2024, Judge Eric Wildman issued an Amended Order on Cross Motions for Summary Judgment (Amended Order). Because the court found in favor of the State on all issues, as detailed below, the Amended Order denied Pocatello’s motion and granted the States’ motion, effectively disposing of all issues raised in the Complaint. On February 1, 2024, the court entered a Judgment dismissing the Complaint with prejudice.

The Court’s Ruling

The first issue, whether the State violated the APA by adopting the Procedures without satisfying the rulemaking requirements of Idaho Code (I.C.) sections 67-5220 through 67-5222, hinged on whether the Procedures constitute “rules” under I.C. section 67-5201(24). The court found that the Procedures are not “rules” on two main grounds: (1) they are “not generally applicable to the public or even to all water users” state-wide, rather they are “narrowly tailored to facilitate the rental of stored water only in [WD01],” and “even within the confines of [WD01], the [Procedures] do not apply to all water users or to all rentals of water”; and (2) “participation in the [WD01] Rental Pool is voluntary” because the Procedures do not prohibit spaceholders from renting storage water “outside of the confines of the Procedures so long as that private lease otherwise complies with Idaho law,” including I.C. section 42-222. Amended Order at 11-12. Notably, the court did not cite any precedent supporting his holding that “agency statements” are not “rules” if: (1) their application is limited to a distinct class of persons “in a given locale”; and (2) the class voluntarily subjected themselves to the statements’ binding effect of law.

The second issue, whether the LTF Rule is facially unconstitutional, hinged on whether “no set of circumstances exists under which the law would be valid.” Amended Order at 13. The court found that there is a circumstance where application of the LTF Rule would be valid: when a spaceholder’s rental results in a temporary use that is not authorized under the storage right (i.e., an enlargement of the right), because “there is per se injury to junior water rights holders anytime an enlargement receives priority.” Id. at 15-16. Thus, if a rental resulted in an enlargement (e.g., the lessee used the water for municipal purposes rather than irrigation), the LTF Rule rightfully subordinates the priority date for the portion of the storage space that was rented “to prevent unlawful injury to the priority of junior water rights.” Id. at 16. However, the court found—given the dramatic disconnect between Pocatello’s contract and the partial decree encompassing its storage water—that Pocatello “presents a unique scenario” because it is unclear what its “authorized uses are under its storage right in Palisades Reservoir,” but the court declined to address that question because this lawsuit raised a facial challenge to the LTF Rule, not an “as applied” challenge. Id. at 17-19.

The third issue, whether the State committed a “taking” of Pocatello’s storage right, hinged on whether Pocatello exhausted administrative remedies before filing suit. The court found that Pocatello was barred from litigating this issue because it did not contest the “agency action”—here, the WD01 Watermaster’s allocation of storage water to spaceholders, which occurs upon publication of the Final Storage Report, typically in mid-April—and request a hearing within fifteen (15) days of receiving notice of the action, as set forth in I.C. section 42-1701A(3). Amended Order at 20. Although Pocatello argued that it need not exhaust administrative remedies because the State acted outside its authority in applying the LTF Rule, the court found otherwise. Id. at 1. Thus, the court dismissed the claim based on a failure to exhaust rather than the merits of the claim.

Conclusion

Whether Pocatello can achieve its end goal of renting its storage water for mitigation without losing its priority date remains to be seen. Based on the court’s order, this likely will involve litigating a question of first impression, as framed by the court:

    • [A]re the elements of a storage right in a federal reservoir defined solely by language found on the face of the license or partial decree; or by a combination of the language found on the face of the license or partial decree and the language of the spaceholders’ contracts? And if so, to what extent are the spaceholders’ contracts given effect?

Amended Order at 17.

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