Jarndyce v. Jarndyce in the Wild, Wild West

Jarndyce v. Jarndyce in the Wild, Wild West

Or how this derelict old hydro plant from the 1900’s in the middle of nowhere caused a 27 yearlong lawsuit involving more than 158,000 claims and costing the state of Idaho more than $93 million (and, unlike the Dickens’ story, is deservedly hailed by everyone as a great achievement)

Having a vague memory of my involvement with water rights in Idaho many years ago, both Janell and Andy sent me links to a recent story they picked up on NRP about Idaho’s recent completion of its 27-yearlong project to adjudicate all the water rights in the Snake River.

Here are links to the Boise public radio and to a couple of articles in the Idaho Statesmen.

http://boisestatepublicradio.org/post/why-it-took-27-years-and-94-million-complete-idaho-water-rights-adjudication

http://www.idahostatesman.com/2014/08/24/3338784/idaho-completes-massive-water.html, http://www.idahostatesman.com/2014/08/27/3343222/panel-parched-west-can-learn-from.html.

The completion of this water right adjudication, including the complicated and politically sensitive Indian and federal claims, and the negotiations and settlement agreements that lead to it, is an achievement Idahoans should properly be very proud of. It also is, in my view, an example of how sometimes very good things (as well as a lot of work and fees for lawyers) can come from otherwise obscure events and (again in my view) an incorrectly decided court decision.

This massive litigation emerged from the convergence of a largely forgotten piece of Idaho history, a geographic quirk in course of the Snake River and a little political game of tit for tat that then inadvertently created what was truly a legal water right crisis in Idaho of epic significance (and in which I happened to have had a early minor “cameo” appearance).

 I think it is a great story and I enjoy telling it more than any of you have any interest in reading it. Nevertheless, here it is:

Prior Appropriation – Western Water Rights

Our legal traditions, namely the English common law, were developed in areas such as the UK and the eastern US where there was generally lots of water. The traditional common law rules on a person’s right to use water, typically referred to as “riparian rights,” were based on a landowner having the right to make reasonable use of water flowing across or adjacent to the landowner’s property.

The more arid parts of the western United States were settled by miners, Mormon pioneers and others well in advance of the formal establishment any government or legal institutions from the East. But the taming of the West necessitated that rules governing the use of water be settled well before those Eastern legal institutions, along with their “riparian rights” doctrine, could firmly take hold.  From these early mining camps and pioneer settlements a set of rules emerged based on the principle of “first in time, first in right” that, not surprisingly, had some parallels with the rules on mining claims that were developing around the same time in Western mining camps. Essentially, the first person to take water from a stream and use it (an act of appropriation) has a right to continue to use that water superior to someone who may later take and use water from the same stream.  This system of water rights is usually referred to as the “prior appropriation” doctrine and some variant of it is the rule in all western states, including Idaho.

The doctrine of prior appropriation is one of the very few areas of law in the US that is not borrowed from the English (or in the case of Louisiana, French civil law) or developed first in the eastern states, but developed solely out of the common needs and practical experience of early settlers in the West – a uniquely Western form of common law.

How it works

Assume farmer Jones starts diverting 10 cubic feet per second (cfs) of water on July 24, 1847, from a stream into a ditch that takes that water to his property a mile away where he uses the water to irrigate his farm.  Farmer Jones has a water right of 10 cfs with a priority date of July 24, 1847. Later, miner Smith on January 24, 1848, begins to divert 10 cfs from the same stream a mile upstream from where farmer Jones diverts water, and miner Smith uses that water in his gold mine located on his land that is crossed by that stream. Miner Smith has a water right of 10 cfs with a priority date of January 24, 1848.

As long as the total stream flow is 20 cfs or more, Smith and Jones are each able to use the full amount of their respective water rights. However, if the total stream flow is reduced to only 15 cfs, the stream would be considered “over appropriated” - meaning the total water rights in the stream exceed the water in the stream - and in that event Smith would have to curtail his use and allow 10 cfs to flow down to Jones, leaving Smith with only 5 cfs to use in his mine on his property. Similarly, if the river flow were 10 cfs or less, Smith could divert nothing, but would have to allow the entire stream to flow down to Jones. The point is that in a shortage the more senior right is filled in full before a junior right is permitted to take anything and, unlike riparian rights, there is no right to use water from the stream simply because the stream crosses your property.

It you reflect on this for a while you’ll realize why this approach works better in the development of the arid West with frequent droughts than would the riparian rights rule. It is simple and provides certainty as to the amount of your water rights when there is a shortage (and clear, well defined property rights are, as economists teach us, a necessary to condition to the economic development). Unlike riparian rights, prior appropriation permits the use of water for the benefit of non-riparian lands, and allows for the capital investment in dams and irrigation canals and similar large-scale projects necessary for the development of arid lands, including the irrigation of non-riparian lands.

While the prior appropriation theory is simple to understand, when applied to a watershed the size of the Snake River (basically all of southern Idaho) with over 158,000 water rights, it becomes fairly complicated to administer. In Idaho, the Department of Water Resources administers the water rights. Essentially, a water user submits a water right application to DWR and, if certain conditions are met, DWR issues a water right permit defining the amount and priority date. This water right permit is really only a provisional “prima facie” right. Eventually, DWR or other parties may commence a formal water right adjudication, a court proceeding before a judge, involving all parties with water right permits and claims in a designated watershed.  The end result of the court proceeding is a final judicial decree on each water right that determines its appropriation date and quantity (a “decreed water right”), which is final and conclusively binding against any other claimants.

A little bit of Idaho History

In the late 1890s and early 1900s, the mines in Silver City (southwest of Nampa - we’ve all been there) were still operating and needed a source of energy. They were largely dependent on wood for fuel and there wasn’t much of that left, especially on the arid side of the mountains where they were mining.  A young Boise engineer named A.J. Wiley identified Swans Falls on the Snake River as a suitable site for a hydroelectric plant to provide power to Silver City. With some financial backing from Consolidated Trade Dollar, a Silver City mining company, a hydroelectric generating plant was built at Swan Falls in 1901. If you drive from Nampa due south until you run into the Snake River (which flows across southern Idaho) you’ll be just a little west of Swan Falls. The original dam and plant were added to in subsequent years and later renovated in 1936 so what you see in the picture above is not the original dam.

In building the Swan Falls power plant the owners obtained water rights commonly known as “flow rights,” meaning they had the right to have a certain minimum amount of water flow across the dam for use in generating electricity (as compared to a right to divert water out of the river, e.g. for irrigation). These water rights had priority dates between 1900 and 1919. In time the mines in Silver City closed. Although the power from this plant was used in Boise and Nampa for a while, the Swan Falls plant eventually ceased to be used or to have any significant role in power generation in Idaho and was largely forgotten. The company that owned the Swan Falls plant eventually became part of what is now Idaho Power Company. The Swan Falls plant became for the most part a forgotten and largely inconsequential historical part of Idaho Power’s system.

In the 1950s and early 1960s Idaho Power built its Hell ‘s Canyons complex, one of the country’s largest hydropower projects, on the Snake River along the western edge of Idaho. The complex consists of a reservoir and a series of three dams with hydroelectric plants.  Three things here are important for this story.  First hydropower is cheap and every other source of power is expensive, and cheap hydropower is important to Idaho’s economy. Second, the Hell’s Canyon plants are Idaho’s largest and most important source of cheap hydropower and, third, they are downstream from Swan Falls.

In the 1950’s and 1960’s thousands of acres of farmland were put in to production based on a newly developed irrigation technology that involved “high lift” pumping from the Snake River. When I was in high school I worked at a farm (Kondo Farms) with huge pumps taking water directly from the Snake River, which ran through a gorge below, up to the farmland on the Snake River plain above. The development of this pumping technology also lead to pumping groundwater from aquifers that fed springs that in turn fed the Snake River and its tributaries. Also, farmers started pumping from alluvial areas with a hydrological connection the Snake River or its tributaries.  Much of the farmland between Twin Falls to the east and Kuna on the west was developed based on such pumping.

There are three important things here for the story:

First, the pumps that so revolutionized irrigation and farming in Idaho and made this all possible were powered by electricity and such irrigation was economically viable in large part because of the cheap hydropower in Idaho, which mostly came from the Hell’s Canyon plants. In the 1950s and 1960s Idaho Power actively promoted such pumping as a source of new customers and revenues. Idaho Power used to give farmers who put in such pumps free Christmas trees and Christmas lights the way banks used to give away toasters for new deposits.

Second, this pumping, of course, reduced flows in the Snake River. Farmers pumping directly from the Snake River or a tributary would need to and did secure water right permits, but with relatively late priority dates.  Although groundwater pumping along the Snake River Plain clearly had an affect on surface flows in the Snake River, Idaho water law and it water rights administration system was not set up to recognize that fact and ground water pumping was not really incorporated into the administration of surface water rights. Nonetheless, at this time the Snake River was generally considered “under appropriated” meaning there was still water in the Snake River available for future growth. For farmers and Idaho Power, life was good and the future bright.

Third, the farmlands developed through this new high lift pumping were largely located upstream of Swan Falls. Because of geology and the course of the Snake River there were few opportunities to develop additional farmland with high lift pumping downstream of Swan Falls and there were as a practical matter no suitable sites in Idaho to divert significant amounts of water from the Snake River below Swan Falls. In short, water that made it to Swan Falls would flow on through the Hell’s Canyon’s hydroelectric plants down to the Columbia river in Oregon and Washington and out to the Pacific Ocean.

Power rates and the Crisis

In the late 1970’s Idaho Power was still subject to rate regulation (this was years before the sweeping de-regulation of utilities in in the 1990s) and Idaho Power’s rates were set by the Idaho Public Utility Commission through a public administrative rate making proceeding. At this time there was a drought with the Snake River flows running well below normal. This, of course, resulted in a reduction in the river flows at the Hell’s Canyon plants and a corresponding reduction in hydropower generation. Because of the reduced hydropower generation at Hell’s Canyon, Idaho Power was forced to purchase more expensive electricity from other sources, such as coal-fired power plants, and in the ratemaking proceeding it sought a rate increase to compensate for those additional costs.

Now we need another brief digression into some more Idaho history. The 1970s was a period of great economic growth in Idaho and since there were no available hydro power sites, Idaho Power proposed to meet its growing energy needs by building a large coal fired power plant southeast of Boise, to be known as the Pioneer plant. Construction of such plant would require PUC approval.  This was also a time of a small but growing environmental movement in Idaho.  The Pioneer plant proposal galvanized that movement, which then set about to mount a very vocal and effective opposition to the proposal. Some Idaho farmers, recognizing that the effect of the coal fired plant would be substantial increases in power costs and that much of their land was only profitable because of the low cost hydropower, also opposed the proposed plant. This became a very public and bitter battle in Idaho.

Ultimately, the decision rested with the PUC.  Cecil Andrus, the governor at the time, testified before the PUC in opposition to the Idaho Power proposal. While the PUC is an independent agency, two of its members were appointed by Andrus and in the end after lengthy hearings and political maneuvering by all participants, the PUC voted down the proposal.  This was a surprising defeat for Idaho Power, given its political influence in the state.

Exhausted from this bitter fight over Pioneer, a PUC commissioner resigned and Andrus appointed a Boise attorney and something of a political gadfly named Matthew Mullaney to fill the open seat. Andrus then left Idaho to be President’s Carter’s Secretary of Interior. Mullaney’s appointment, however, required legislative approval, and with some lobbying by Idaho Power, still smarting from the Governor’s opposition to Pioneer, the Legislature rejected Mullaney as unqualified and too closely tied to environmental groups. Mullaney, out of a job as a PUC commissioner, decided to spend some time researching Idaho Power’ water rights (and perhaps plotting his revenge).  Now, back to the story and Idaho Power’s ratemaking proceeding.

PUC ratemaking proceedings involved large numbers of participants in addition to the utility and the PUC staff, such as major industrial ratepayers, associations representing various groups of similarly situated ratepayers and the occasional individual citizen, all are arguing over the minutia of Idaho Power’s costs and profits and why someone else should pay a greater share of them.

In this particular ratemaking proceeding Mullaney appeared on his own and on behalf of several other private citizen ratepayers, and made a rather audacious (and very clever) complaint. Mullaney alleged that Idaho Power had failed to protect and preserve its Swan Falls water rights and that, by so doing, Idaho Power had wasted its assets and overstated its capital investment, thus resulting in overcharges to its ratepayers. So in Mullaney’s view not only should Idaho Power not be granted a rate increase, but ratepayers should be given credit for past overcharges.

It is important to note that Mullaney’s claim had nothing to with the amount of power, if any, that actually was or that could be generated at Swan Falls – actual power generation at Swan Falls was not the point. Rather, Mullaney argued that because of the early priority dates of Idaho Power’s water rights at Swan Falls, Idaho Power had the right to require that the river flow at Swan Falls be increased to the full amount of its relatively large flow rights at Swan Falls. Those increased flows at Swan Falls would then necessarily result in increased flows downstream at Hell’s Canyon and hence more low cost hydro power generated at Hell’s Canyon and less need for Idaho Power to purchase more expensive coal fired generated power.

The fact was that over the 70 years or so since the Swan Falls was built and its water rights obtained, thousands of acres of farmland had gone into production. In particular the more recent high lift pumping from the Snake River had significantly reduced the flows at Swan Falls below Idaho Power’s nominal flow rights at that place. If the flow rights at Swan Falls were enforced more water would reach Hell’s Canyon, providing ratepayers with increased amounts of cheap hydropower, but under Idaho’s prior appropriation water law doctrine enforcement of Idaho Power’s flow rights at Swan Falls would require that hundreds of Idaho farmers (and Idaho power customers) lose their water.

This complaint, not surprisingly, caused something of a stir in the normally tediously boring ratemaking proceeding. There was a lot of legal squabbling about how to handle the complaint since any decision on the complaint would necessarily require an interpretation of Idaho Power’s water rights and, except for Mullaney and a few PUC staff members, there was general agreement that a PUC ratemaking proceeding was not the best forum to adjudicate water rights.

This PUC ratemaking proceeding eventually resulted in Idaho Power bringing a lawsuit in the district court in Ada County against the state of Idaho (and in particular the Department of Water Resources, which was responsible for administering water rights) and most other water right holders in the Snake River to determine its water rights at Swan Falls.

My brief cameo appearance

At that time I was a Deputy Attorney General in Idaho working in the Department of Water Resources and handled case for DWR. Government agencies tend to have a “constituency” and the DWR was no different – ours was the water users – we were on the side of the farmers, not Idaho Power or its ratepayers.   Also, DWR had been issuing water right permits for years to farmers upstream of Swan Falls without regard to the earlier flow rights at Swan Falls (and agencies really do not like to admit mistakes, especially of this magnitude). The Idaho Attorney General Office through David Leroy, the Attorney General at the time and several Deputy Attorneys General, such as myself, was on all sides of every issue. Another Deputy Attorney General representing the Public Utilities Commission, appeared the case in favor of ratepayers, and yet another Deputy Attorney General appeared on behalf of the Department of Wildlife (and I don’t recall their position but that department was normally pro-fish and anti-dams and against reductions in stream flows).

Regardless of the bureaucratic bias of the DWR and the potential benefits to ratepayers, the economic (and political) consequences of cutting off Snake River water to hundreds of Idaho farmers and the loss of the use of this water to the state of Idaho were unimaginable.

The legal issue

The legal issues raised were many and complex, including questions under Idaho Power’s federal licenses for its hydropower projects and the underlying federal statutes under which they were granted, questions on Idaho public utility laws on the disposition or loss of utility assets and questions whether Idaho Power had abandoned or forfeited its Swan Falls water rights or should be equitably “estopped” from enforcing them. But those were largely on the periphery of the key issue, which was whether Idaho Power through its water rights at Hell’s Canyon had previously “subordinated” its Swan Falls water rights. Here a bit more history is necessary.

Hell’s Canyon Project – A bit more Idaho history

When Idaho Power proposed its Hell’s Canyon project in the 1950s it was competing against another project proposed by the United States Army Corp of Engineers. This was during the heyday of dam building by the US Bureau of Reclamation (for irrigation projects) and the US Army Corps of Engineers (for flood control) and with hydroelectric plants added to their irrigation and flood control projects the federal government was getting in the power generation business.  Idaho Power, a private, investor owned public utility, was anxious to build its proposed project and keep the government power projects off its turf. 

To prevail in this competition the political support of the state of Idaho was critical. Idaho did not oppose a hydro project at Hell’s Canyon, but was concerned that the flow rights for the project would limit the future upstream diversions from the Snake River and growth and development in Idaho. The ACOE offered Idaho a qualified water right subordination. That is, the ACOE would subordinate the flow rights at Hell’s Canyon to future upstream diversions (that is the water rights for the dam would be deemed to be junior in priority to any future upstream rights to divert water from the Snake River), but on the condition that such future upstream diversions were not “unreasonable.”  Idaho Power, however, offered to unconditionally subordinate its water rights to future upstream diversions. Idaho Power got Idaho’s support, its project was built and its water rights at Hell’s Canyon were subordinated to future diversions from the Snake River and its tributaries.

The legal question raised now by Idaho Power’s lawsuit was whether this subordination of Idaho Power’s water rights at Hell’s Canyon had the effect of also subordinating its water rights upstream at Swan Falls. The problem for DRW (and Idaho water users) was that the water rights for Swan Falls issued in the early 1900’s did not contain a subordination provision and the Hell’s Canyon rights made no specific reference to Swan Falls (a surprising and monumental legal oversight by Idaho back in the 1950s given how shrewd and effective Idaho had otherwise been politically).

Since there were not then, and everyone knew there never would be in the future, any significant water diversions between Swan Falls and Hell’s Canyon, the subordination in the Hell’s Canyon water rights would have been meaningless unless it was also interpreted to include the subordination of the water rights at Swan Falls. In addition, Idaho Power operated its dams along the Snake River (including the CJ Strike Dam upstream from Swan Falls and the Hell’s Canyon dams downstream from Swan Falls) as a single system so there was some operational logic in applying the subordination provision more generally to Idaho Power’s system in order to prevent Idaho Power from circumventing the intent of the subordination.  Anyway that was our principal argument to the district court. We also argued that Idaho Power over the course of time had abandoned or forfeited its water rights or should be “estopped” from asserting them adverse to these farmers (including lots of references to its promotion of high lift pumping upstream of Swan Falls to the very farmers who would not be shut off).

I drafted the state’s answer and prepared and argued a motion for summary judgment to the district court. I remember it being a rather frightening experience. It was the first summary judgment motion I had ever argued (and that alone was source of terror), but the case was of also some importance and the courtroom was full of the “deans” of the Idaho water rights bar among others (adding to the stress level and potential for unredeemable professional embarrassment). In the end the argument went well enough and the district court granted our motion concluding that the subordination in the Hell’s Canyon water rights was effective to also subordinate the Swan Falls’ rights. Shortly after that we moved to Denver and I exit the story with a win.

Epilogue

The case was kicked around in the courts for a few years and eventually in 1983 the Idaho Supreme Court issued its final decision on appeal. To most everyone’s surprise the Idaho Supreme Court reversed, holding that the subordination in the Hell’s Canyon water rights did not extend to Swan Falls and sent the case back to District Court to determine the abandonment and forfeiture issues, which the District Court had not addressed.

Here it is important to keep in mind what the Supreme Court did and did not decide. It decided that Idaho Power’s water rights at Swan Falls were not subordinated by the Hell’s Canyon subordination provision, but it did not actually decide anyone’s water rights, and in fact with this decision no one on the Snake River knew what their rights were.  While Idaho Power won on the subordination issue, it did not know to what extent its Swan Falls rights might yet be determined to have been forfeited or abandoned. Given absence of consistent operation of the Swan Falls plant, those rights were vulnerable to challenge on that basis (and Idaho Power’s prior conduct in shamelessly promoting the electric powered high lift pumping to many of those it would now be seeking to cut-off water to, wouldn’t exactly help its case).  

Since the Snake River had previously been viewed as “under-appropriated” (more water than water rights) no one had paid much attention to the accumulation over the years of many water rights and water right permits that may not be valid or not now enforceable in their full stated amounts if at all.  So if water users had to be cut-off in order of priority to fill Idaho Power’s flow rights at Swan Falls, no one knew with any certainty or confidence how to identify those to be cut-off and by how much. To further complicate matters, water rights are usually also defined by time of usage, i.e., a water right holder’s appropriation right may apply during summer irrigation season but not during winter months.  In other words the water rights to the Snake River were so numerous and uncertain that there would be no practical way to determine who was and who was not junior to Idaho Power’s rights and who should have their diversion reduced and by what amounts and at what times.

Adding even more uncertainty, under a doctrine known as “reserved water rights” the federal government and Indian tribes may also have water rights associated federal lands (BLM and Forest Service) and Indian reservations and Idaho has a lot of both. Those rights are vague and not clearly defined, but since they may in many cases be senior to private, state created water rights, they create an ominous cloud of uncertainty over water rights of other users.  

Hence, the need for a practical, agreed upon resolution, and to their credit the Idaho leaders at the time managed to do just that. In today’s more polarized political environment I’m less confident that could be done today. The settlement agreement, as I understand it, essentially recognized a certain level of minimum flow rights of Idaho Power at Swan Falls that was something less that the total amount claimed by Idaho Power. The amount representing the difference between Idaho Power’s claim and the agreed upon minimum was placed in a trust with the state having the ability to allocate those rights.

The settlement agreement also provided for a complete judicial adjudication of the Snake River and for the first time incorporated groundwater pumping into the adjudication. As the adjudication developed it also resulted in settlement agreements with the federal government and Indian tribes regarding their water rights claims in the Snake River. Those negotiations and agreements would increase dramatically the complexity and duration of the project. Reaching any agreement with the federal government or an Indian tribe on water rights would a grueling effort and significant achievement in its own right.

So while I still tend to think that the Idaho Supreme Court got it wrong on the subordination question, the effect of the Court’s decision (which essentially threw the whole Snake River water rights mess back to the state, Idaho Power and the water users to sort out) was in the end a very good thing.

Personal Epilogue

Had I remained in Idaho (whether or not with the AG or DWR) I could have spent much of my legal career on this adjudication. In fact, one of the lawyers quoted in the Statesmen article, John Rosholt, a partner in a prominent firm in Twin Falls that represents most of the larger water users and irrigation companies in southeastern Idaho, offered me a job while I was with DWR. I turned him down.

What would our lives had been like had I decided to stay in Idaho pursuing my interests in water law? Our decision to leave Idaho for a job in Denver was a complicated one, both professionally and personally, and is the subject for another story.  The short answer  though is I’ve thought carefully about it and I have no regrets, and I think that’s true for Mom as well.