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This past winter, in WaterWatch of Oregon v. Water Resources Department, the Oregon Court of Appeals reversed and remanded an Oregon Water Resources Department (OWRD) order granting a municipal water permit extension to the city of Cottage Grove, and issued instructions to vacate the related water right certificate.

In April, the Oregon Supreme Court granted review of the Court of Appeals’ decision. If upheld, the decision could significantly affect the ability of municipalities to perfect their municipal water rights to the full extent authorized in their existing permits.

Prior to appropriating water to meet its water service obligations to residential, commercial, industrial and other users, a municipality must obtain a water permit from OWRD. Once the municipality receives a permit, it has 20 years to complete construction of required water works and other facilities necessary to appropriate and then apply the water to authorized uses. Once the municipality submits evidence showing the water has been used in compliance with permit conditions, OWRD issues a water right certificate and the municipality then has a vested water right.

Given a variety of factors beyond their control (e.g., funding capabilities, unanticipated levels of water demand, changes in applicable government regulations, etc.), municipalities can struggle to complete construction of water works within 20 years. For this reason, a municipality often seeks an extension of time to satisfy its water permit. Any such approval, however, may be subject to conditions.

ORS 537.230(2)(a) – (c) allows OWRD to grant an extension of time to a municipal use permit holder to complete construction or to perfect its water right: (a) for good cause, provided that (b) “the holder may divert water beyond the maximum rate diverted for beneficial use before the extension only upon approval by OWRD of a water management and conservation plan.” Under subsection (c), the statute also provides that “for the first extension issued after June 29, 2005 for a permit for municipal use issued before Nov. 2, 1998, OWRD must find that the undeveloped portion of the permit is conditioned to maintain the persistence of (protected) fish species.” These statutory provisions are the central issue in the case.

In November 1977, the city of Cottage Grove obtained a water permit authorizing the diversion of 6.2 cubic feet per second (cfs) of water from the Row River for municipal use. The permit required all water works to be constructed by Oct. 1, 1979 and the water applied to beneficial use on or before Oct. 1, 1980. Thereafter, the city obtained permit extensions necessary to complete construction, the last of which expired in October 1999. However, due to prolonged rule-making involving extensions, OWRD did not require the city to obtain an additional extension until after the new rules became effective in late 2005.

In December 2007, after having substantially completed construction, the city submitted its application for extension of time. In May 2008, the city modified its diversion structure to allow diversion of the full 6.2 cfs authorized under its permit. In early 2008, OWRD granted the city’s request to place its extension application on administrative hold and approximately six months later the city diverted 6.2 cfs of water into its water works to apply its full amount of water to beneficial use. On Aug. 4, 2008, the city requested the administrative hold be lifted, and 15 days later OWRD issued a proposed final order granting an extension of time to Oct. 1, 2013 for completion of the water works and to apply the water to beneficial use consistent with the permit.

WaterWatch challenged the proposed order and, following a hearing in late 2009, an administrative law judge affirmed the extension. The ALJ concluded that because the full 6.2 cfs of water was applied to beneficial use, no portion of the permit remained to be perfected and therefore no basis existed under ORS 537.230(2)(b) and (c) requiring the preparation of a Water Management and Conservation Plan or conditioning the extension to maintain the persistence of fish species. In September 2010, OWRD issued a final order adopting the ALJ’s decision. Approximately one month later, OWRD issued a water right certificate confirming the city’s perfection of its water right to the full extent authorized under its permit.

Although it did not challenge the issuance of the certificate, in November 2010 WaterWatch petitioned the Court of Appeals for judicial review of OWRD’s final order.

On appeal, petitioners argued that, under ORS 537.230(2)(b) and (c), any portion of water not applied to beneficial use prior to expiration of the city’s permit or any extension thereof, may not be later perfected until a permit holder receives an extension that includes conditions requiring: (a) Department approval of a Water Management and Conservation Plan; and (b) because the original permit was issued before Nov. 2, 1998, a condition to maintain the persistence of fish species. OWRD and the city alleged that water may be applied to beneficial use following the expiration of a permit so long as an extension amending that deadline is approved prior to the permittee’s submittal of final proof confirming the perfection of its water right.

The Court of Appeals agreed with the petitioner’s interpretation of ORS 537.230(2)(b) and (c), stating that OWRD’s interpretation would allow “municipalities to circumvent the requirements for fish protection and approval of a water management and conservation plan simply by completing construction and applying the full amount of water allowed under the permit to the use before applying for an extension of the permit.” The court reversed the final order granting the permit extension and sent the case back to OWRD ordering it to cancel the water right certificate and reconsider the city’s extension application consistent with the court’s interpretation of ORS 537.230(2)(b) and (c).

Absent a substantive reversal of the Court of Appeals’ decision or a legislative fix, any extension granted to the city will include conditions for the persistence of listed fish species. As the city considers the potential of having to assume such a burden, other similarly situated municipalities would be wise to consider the potential impacts of this case and their ability to appropriate water in time, place and manner to the full extent provided under their existing water permits.

Peter Mohr is an attorney at Jordan Ramis PC and a member of its Dirt Law practice group. He regularly advises clients on natural resources, environmental, energy, and water law. Contact him at 503-598-5529 or [email protected].