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TBJ JANUARY 2023

When in Drought

Demand and constraints on Texas’ water supplies.

Written by Russell Johnson and Lecelle Clarke


The laws that apply to water in Texas were established over a century ago, at a time when supplies were abundant and demand small.1 Texas recognizes and follows two distinctly different legal and regulatory principles, depending on whether the water is surface water or groundwater. Surface water (water in a water course) is owned by the state. The right to divert and use it for commercial purposes requires a permit issued by the state.2

Groundwater is owned by the landowner as part of the fee simple estate.3 The right is, like minerals, a vested right protected under the Constitution from uncompensated taking. The right is, as with minerals, the dominant estate.4 Under this absolute ownership rule of groundwater by the landowner or the Rule of Capture, with limited exceptions, the landowner can produce and use groundwater for a beneficial purpose without waste.5 In the 1950s, the state enacted legislation authorizing and creating “local” groundwater conservation districts to manage groundwater within their boundaries, and these districts now have broad authority to regulate groundwater production. Senate Bill 1 in 1997 and Senate Bill 2 in 2001 empowered districts to require permits and limit use, to protect both the resource and those already dependent on it. Subsequent legislation requires districts to adopt management plans, set goals intended to be achieved, and adopt rules to accomplish the goals.6

Both the surface water and groundwater regulations concentrate on protecting existing users and the resource. In the state’s water courses, very few unappropriated flows are available, and reservoirs designed to catch periodic excess flow take decades to fully permit and are vulnerable to drought. A new permit to divert surface water can only be granted if it will not adversely affect existing permit holders and is protective of environmental flows. Groundwater is subject to management by local groundwater conservation districts that are motivated to protect local use and reluctant to see water produced locally transported to support demand outside local boundaries.

It is within these constraints that increased demand and the delivery of water—from where it is to where it is needed—must be addressed.

 

Water Use Exempt From Regulation During Drought
Despite the different regulatory frameworks for surface and groundwater, both recognize users exempt from regulatory oversight. Landowners adjacent to surface water can divert and use surface water for domestic, livestock, and wildlife purposes without a permit or oversight, including the right to divert and impound up to 200 acre-feet of water for these purposes.7 Similarly, groundwater conservation districts cannot require a permit for domestic, livestock, and wildlife wells if less than 25,000 gallons per day can be produced.8 The absence of authority to limit use presents a challenge during drought conditions, but such concerns may be addressed by adopting statewide or local drought restrictions.

 

Drought and Surface Water
The Texas Commission on Environmental Quality, or TCEQ, the Public Utility Commission of Texas, or PUC, and public utilities all require drought management plans to address non-essential water use reduction during droughts, but enforcement is difficult and largely non-existent. Unfortunately, during drought shortages, surface water rights can be completely curtailed based on the priority date of the permit, without consideration of the importance of use. This means a senior water right can require the TCEQ to completely curtail junior rights upstream to protect the more senior downstream right. Many of the most senior rights in Texas rivers are near the coast, rendering most upstream rights vulnerable. During the drought in 2011, the TCEQ issued orders curtailing junior water rights in several river basins but exempted municipal and electric generation from the curtailment. This exemption was challenged, and the court ruled9 this exemption to be beyond the TCEQ’s authority and inconsistent with the law. Severe drought may thus threaten water permits, no matter how essential.

 

Drought and Groundwater
Limiting groundwater use during drought is the responsibility of groundwater conservation districts. Permit holders can be required to have plans to reduce demand during drought, but enforcement of the required reductions is challenging. Usage is generally regulated through the permit, which establishes annual production authorizations. Some groundwater conservation districts have adopted rules to administer these programs based upon monthly usage, and some even restrict outdoor usage, but enforcement is still difficult and mandated reductions present different challenges for different types of use. Industrial, commercial, and agricultural use cannot be easily reduced.

The planning process that groundwater conservation districts are obliged to undertake requires the district to adopt “desired future conditions,” or DFC, for the aquifers they manage, which are used to determine, based on models, how much groundwater (the Modeled Available Groundwater, or MAG), can be produced annually and still achieve the DFC. Many groundwater conservation districts treat the MAG as a cap on overall production. Most of the DFCs adopted to date were set to accommodate anticipated local demand with no consideration of needs or demands outside their area. The result is that large-scale projects can be prevented or reduced to meet the adopted DFC.

The result is similar to the difficulty in moving surface water from one basin to another. Both impede what is clearly needed—the ability to move water from where it is abundant to where it is needed.

 

The Market and Constraints on Development of New Surface and Groundwater Supplies
The “market” in water rights for both surface water and groundwater is severely constrained by existing law and regulation. Moving a surface water right from its authorized location or changing the purpose or place of use requires a permit amendment. This process is time consuming, expensive, and uncertain. Often the cost will exceed the value. These factors make movement or change in use of permits rare, except on the Rio Grande downstream of the Amistad Reservoir, where an active market exists since all permits/rights are secured by the reservoirs upstream.

Similarly, the market in groundwater is burdened by the time, expense, and uncertainty of the regulatory process and the almost universal opposition to production for use remote from the production. Those few transactions involving transport of groundwater have either been undertaken in a predictable regulatory environment or in areas not within a GCD.

Likely, future demand will be difficult to satisfy by developing new surface water supplies. Little unappropriated water is available in the state’s rivers. Reservoirs to capture excess flow are extremely expensive, take decades to permit and construct, and will inherently be subject to drought since the reservoir must be operated to preserve all previously issued permitted rights. Meeting future demand from groundwater presents an even more daunting challenge when the intended use is outside the local groundwater conservation district’s jurisdiction or is for large amounts. Moving water from where it is to where it is needed may be controversial, expensive, uncertain, and the permit process can take years.

 

Future Groundwater Caselaw
As mentioned above, the dual fundamental principles that groundwater is owned by the landowner as part of the fee simple estate,10 and that this vested right in the dominant groundwater estate is protected under the Constitution from uncompensated taking,11 will undoubtably generate litigation. The Texas Supreme Court has made clear that regulation that precludes the exercise of this right is a taking.12 What remains to be defined by the courts is the extent to which restrictions or limits on this right result in a compensable taking and the appropriate standards for assessing such damage; the one reported case on this issue provides some guidance, applying a loss of investment backed expectations is an appropriate standard.13 As regulation by GCDs limits or restricts usage to achieve their management goals, takings claims will be pursued.

Disputes between the dominant groundwater estate, the dominant mineral estate, and the subservient surface estate are similarly likely as these rights come in conflict. The Accommodation Doctrine, as applied to groundwater development, will likely be the subject of litigation and disputes between the groundwater owner and the mineral owner and can also be expected when groundwater is necessary for mineral development.14

Likewise, severed groundwater interests or reserved royalties will likely generate litigation. Reserved rights or royalties will inevitably be divided, conveyed, and inherited, generating potential litigation. Expect the courts to look to oil and gas law for guidance. Pooling of groundwater rights is another area devoid of caselaw guidance and a likely area of future litigation.

 

Conclusion
Texas faces numerous challenges in meeting future water demand and protecting supplies during recurring drought. Declining availability, drought, and regulatory constraints affect both surface water and groundwater. While Texas has made major strides in planning and regulation of these sources to support existing and future use, many obstacles hinder development of new or repurposed use. Caselaw is not well-developed, and the consequent uncertainty likewise constrains development. Texas need not run out of water to support the growing demand, but it must act to facilitate this development. TBJ

 

Notes
1. Gabe Collins, Blue Gold: Commoditize Groundwater and Use Correlative Management to Balance City, Farm and Frac Water Use in Texas; Natural Resources Journal, Vol. 55, No. 2 (2015), pp. 441-442, https://www.jstor.org/stable/24889768; see also Gerald Torres, Liquid Assets: Groundwater in Texas, The Yale Law Journal, Vol. 122 (2012-13), pp. 143,153, https://www.yalelawjournal.org/forum/liquid-assets-groundwater-in-texas.
2. TEX. WATER CODE ANN. § 11.021(a) (Vernon 2008); See Citizens Against Landfill Location v. Tex. Comm’n on Envtl. Quality, 169 S.W.3d 258, 274 (Tex. App.—Austin 2005, pet. denied) (Texas courts refer to state surface water as “water in a watercourse”).
3. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012) (The Texas Supreme Court in Day declared that the landowner has a real property interest in the groundwater in place under his land that is analogous to the landowner’s property interest in oil and gas). The property interest in groundwater is outlined in section 36.002 of the Texas Water Code (commonly referred to as “S.B. 332”); see also Hous. & T.C. Ry. Co. v. East, 81 S.W. 279, 281 (Tex. 1904) (“[T]he owner of the soil is at liberty to dig therein and take away the percolating water for any legitimate purpose of his own . . . .”).
4. Id.
5. Joseph W. Dellapenna, The Rise and the Demise of the Absolute Dominion Doctrine for Groundwater, The University of Arkansas at Little Rock Law Review, Vol. 35, No. 2 (2013), pg. 291 (analyzing the history and problems of the rule), https://lawrepository.ualr.edu/cgi/viewcontent.cgi?article=1032&context=lawreview; see also Torres, Liquid Assets: Groundwater in Texas, The Yale Law Journal, Vol. 122 (2012-13), pp. 143,153, https://www.yalelawjournal.org/forum/liquid-assets-groundwater-in-texas.) (discussing Texas’ absolute ownership rule).
6. TEX. WATER CODE ANN. § 36.0015 (Vernon 2008); see also Tex. Water Dev. Bd., Map of Groundwater Conservation Districts (March 2008)), https://www.twdb.texas.gov/mapping/doc/maps/GCDs_8x11.pdf.
7. TEX. WATER CODE §§ 11.142(a), .303(a)(2), .307(a); see also 30 TEX. ADMIN. CODE § 297.21.
8. TEX. WATER CODE § 36.117(b)(1).
9. Tex. Comm’n on Envtl. Quality v. Tex. Farm Bureau, 460 S.W.3d 264, 271-72 (Tex. App.—Corpus Christi 2015, pet. denied) (affirming district court’s judgment that TCEQ violated the Drought Rules’ priority system by cherry picking which types of users were curtailed as part of its 2012 drought emergency actions in response to the 2011 drought).
10. See Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012); see also Hous. & T.C. Ry. Co. v. East, 81 S.W. 279, 281 (Tex. 1904).
11. 369 S.W.3d 814 (Tex. 2012).
12. Id.
13. Id.
14. See Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53, 55 (Tex. 2016); see also e.g., Morgan Johnson, Chris Halgren, & Austin Brister, Texas Supreme Court to Determine Whether the Accommodation Doctrine Applies to Severed Groundwater Estate, OIL & GAS L. DIG. (Sept. 13, 2015), http://www.oilandgaslawdigest.com/caselaw/texas-supreme-court-to-determine-whether-accommodation-doctrine-applies-to-severed-groundwater-estate (“By granting Coyote Lake Ranch’s petition to review, the Texas Supreme Court will have the opportunity to address whether [the Accommodation Doctrine] also applies to a severed groundwater estate.”); Ross Smith, Protecting Surface Owners Against Severed Groundwater Users, TEX. TECH L. REV. BLOG (Sept. 22, 2015), http://texastechlawreview.org/protecting-surface-owners-against-severed-groundwater-users/ (“The Supreme Court of Texas . . .now has an opportunity to provide another needed protection to surface owners against sub-surface owner’s activities.”); see also John McFarland, Amarillo Court of Appeals Refuses to Apply Accommodation Doctrine to Groundwater, OIL & GAS L. BLOG (June 26, 2014), http://www.oilandgaslawyerblog.com/2014/06/amarillo-court-of-appeals-refu.html (discussing the petition, and noting that “I expect that the Texas Supreme Court will have to address the applicability of the accommodation doctrine to severed groundwater rights in the near future”).



Russell JohnsonRUSSELL JOHNSON
is of counsel to McGinnis Lochridge in Austin, where his water law practice focuses on matters involving land use, water rights, and the Endangered Species Act. He holds a B.A. in biology and chemistry from Austin College and a J.D. from St. Mary’s University School of Law.







Lecelle ClarkeLECELLE CLARKE
is an associate with McGinnis Lochridge in Austin, where her practice focuses on environmental law (air, water, and waste) and litigation on behalf of private industry clients. She previously worked for the Texas Commission on Environmental Quality and the Office of the Attorney General’s Environmental Protection Division.


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