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Clear Springs Foods, Inc., and Blue Lakes Trout Farm, Inc v. Gary Spackman

March 17, 2011

CLEAR SPRINGS FOODS, INC., AND BLUE LAKES TROUT FARM, INC., PETITIONERS/CROSS-APPELLANTS,
v.
GARY SPACKMAN, IN HIS CAPACITY AS DIRECTOR OF THE IDAHO DEPARTMENT OF WATER RESOURCES, AND THE IDAHO DEPARTMENT OF WATER RESCOURCES, RESPONDENTS, AND IDAHO GROUND WATER APPROPRIATORS, INC.; NORTH SNAKE GROUND WATER DISTRICT; AND MAGIC VALLEY GROUND WATER DISTRICT, CROSS-PETITIONERS/APPELLANTS, AND IDAHO DAIRYMEN'S ASSOCIATION, INC., AND RANGEN, INC., INTERVENORS.



Appeal from the District Court of the Fifth Judicial District of the State of Idaho, in and for Gooding County. The Hon. John M. Melanson, District Judge.

The opinion of the court was delivered by: Eismann, Chief Justice.

2011 Opinion No. 32

Stephen W. Kenyon, Clerk

The judgment of the district court is affirmed.

This is an appeal from a decision on judicial review upholding curtailment orders issued against junior groundwater users because their withdrawals of water from the aquifer were causing material injury to senior appropriators' surface water rights. The senior appropriators also cross-appeal the failure to curtail additional groundwater pumping. We affirm the judgment of the district court.

I. FACTS AND PROCEDURAL HISTORY

The Snake River rises in western Wyoming, flows westward across the entire breadth of Idaho, turns northward forming Idaho's western boundary, and ultimately empties into the Columbia River. It is the largest and longest tributary of the Columbia River. As it crosses southern Idaho, it courses through the Snake River plain, a prominent depression extending about 400 miles in an east-west direction and ranging from 50 to 125 miles in width. Underlying the eastern portion of the plain is the Eastern Snake River Plain Aquifer (Aquifer), which is about 170 miles long and 60 miles wide. It is estimated that it contains up to a billion acre feet of water, which would be roughly the amount of water contained in Lake Erie.

Clear Springs Foods, Inc., (Clear Springs) and Blue Lakes Trout Farm, Inc., (Blue Lakes) (collectively called "Spring Users") are both engaged in fish farming. They each have water rights in certain springs emanating from the canyon wall along a section of the Snake River below Milner Dam in south central Idaho. Those springs are fed by the Aquifer. Members of the Idaho Ground Water Appropriators, Inc., the North Snake Ground Water District, and the Magic Valley Ground Water District (collectively called "Groundwater Users") have ground water rights entitling them to pump water from wells drilled into the Aquifer.

The Aquifer is predominately fractured Quaternary basalt having an aggregate thickness that, in some locations, may exceed several thousand feet. It decreases to shallow depths in the area where the springs emanate. The fractured basalt is characterized by high hydraulic conductivities that are typically 1,000 feet per day, but they range from 0.1 to 100,000 feet per day.

The ground water in the Aquifer is hydraulically connected to the Snake River and tributary surface waters at various places and in varying degrees. As a result, ground water can become surface water, and surface water can become ground water. The amount that becomes one or the other is largely dependent upon ground water elevations. When water is pumped from a well, it causes a cone-shaped lowering of the ground water elevation near the well. Surrounding ground water then flows into the cone from all sides, depleting ground water away from the well. When that occurs in an area hydraulically connected to a reach of the river or its tributaries, it results in a loss of water from the river or a loss of gain to the river.

Beginning in the 1950's, groundwater appropriations from the Aquifer increased dramatically. It now receives about 7.5 million acre-feet of recharge on an average annual basis and discharges about the same amount of water, with nearly 2.0 million acre-feet annually of that discharge in the form of depletions from ground water withdrawals. About 95% of the ground water diverted from the Aquifer is used for irrigation. The remainder is used for public, domestic, industrial, and livestock purposes.

After about two decades of increased groundwater pumping, the resulting decrease in river flow caused the Idaho Power Company to commence litigation against the State and various water users regarding its water rights at the Swan Falls Dam. Idaho Power Co. v. State, By and Through Dept. of Water Resources, 104 Idaho 575, 661 P.2d 741 (1983). It sought a determination of the validity of those water rights and a ruling that they were not subject to future upstream depletion. Id. at 578, 661 P.2d at 744. That dam was the first hydroelectric dam on the Snake River and is located in southwestern Idaho near Murphy, the county seat of Owyhee County. It had been constructed in 1901 by the Trade Dollar Consolidated Mining Company to provide electrical power to the mines in the area of Silver City, id. at 578, 661 P.2d at 744, which was then the county seat. In 1915, that company and four other electric power suppliers merged to form the Idaho Power Company. Id. In that merger, Idaho Power acquired the Swan Falls Dam and power plant. Id. Because of the diminished river flow, an Idaho Power ratepayer had filed a complaint with the Idaho Public Utilities Commission alleging that he and other ratepayers were being overcharged because Idaho Power had failed to preserve its power generation water rights at Swan Falls. Id. at 582, 661 P.2d at 748. After Idaho Power's motion to dismiss for lack of jurisdiction had been denied, it answered indicating that it would file an action to protect its Swan Falls water rights, which it did. Id.

One of the issues in that case involved a subordination clause in the federal license issued to Idaho Power in 1955 for its Hells Canyon project. In the 1950's, Idaho Power had desired to construct three dams in Hells Canyon, which is North America's deepest river gorge. To obtain political support for that project, it proposed that its federal license include a clause subordinating its water rights to future upstream depletion. Id. at 580, 661 P.2d at 746.

Consistent with that request, the federal license for the three dams contained a subordination clause with no conditions attached. Id. at 581, 661 P.2d at 747. In Idaho Power's litigation to determine its water rights at Swan Falls, the district court held that the subordination clause in the federal license for the Hells Canyon project applied to all of Idaho Power's water rights used in hydropower production at all of its facilities on the entire Snake River watershed, including the one at Swan Falls. Id. at 583, 661 P.2d at 749. On appeal, this Court reversed that holding, id. at 586, 661 P.2d at 752, and remanded the case for consideration of affirmative defenses raised by the defendants, id. at 590, 661 P.2d at 756. "Idaho Power responded by filing a second lawsuit naming as defendants the State of Idaho and approximately 7500 persons claiming water rights in the Snake River basin." In re Snake River Basin Water System, 115 Idaho 1, 3, 764 P.2d 78, 80 (1988).

Idaho Power had secured a federal court decree which, together with state water licenses, granted it water rights at Swan Falls of 9,450 c.f.s. with priority dates ranging from 1900 to 1919. Idaho Power Co. v. Dept. of Water Resources, 104 Idaho at 578, 661 P.2d at 744. It was undisputed that the power plant's capacity was 8,400 c.f.s., which would be the limit of its water rights. Id. In order to resolve the lawsuits, Idaho Power and the State entered into the Swan Falls Agreement executed on October 25, 1984. In that agreement, Idaho Power agreed, among other things, to "an unsubordinated right of 3900 c.f.s. average daily flow from April 1 to October 31, and 5600 c.f.s. average daily flow from November 1 to March 31, both to be measured at the Murphy U.S.G.S. gauging station immediately below Swan Falls." Pursuant to the agreement, those flows are not subject to depletion. The State agreed, among other things, to propose and support legislation providing funding for a general adjudication of the Snake River Basin.

In response, the legislature enacted legislation to commence an adjudication of the water rights of the Snake River basin. Ch. 18, § 1, 1985 Idaho Sess. Laws 27, 28. The legislation stated, "Effective management in the public interest of the waters of the Snake River basin requires that a comprehensive determination of the nature, extent and priority of the rights of all users of surface and ground water from the system be determined." Id. On June 17, 1987, R. Keith Higginson, as Director of the Idaho Department of Water Resources (Department), filed a petition in the name of the State to begin the Snake River Basin Adjudication (SRBA), and on November 19, 1987, the court ordered that the adjudication was commenced.

In 1994, an interim legislative committee charged with reviewing the progress of the SRBA issued a committee report in which it stated, "Historically, conjunctive management has not occurred in Idaho, especially between the Snake River Plain Aquifer and the Snake River. To conjunctively manage these water sources a good understanding of both the hydrological relationship and legal relationship between ground and surface water rights is necessary." A & B Irrigation Dist. v. Idaho Conservation League, 131 Idaho 411, 422, 958 P.2d 568, 579 (1997). The committee also "noted the pendency of studies on conjunctive management investigating the effect of ground water pumping on natural springs that flowed directly into the Snake River."*fn1 Id. With respect to the SRBA, the committee stated that the adjudication was commenced "in large part to resolve the legal relationship between the rights of the ground water pumpers on the Snake River Plain and the rights of Idaho Power at its Swan Falls Dam." Id.

In 1994, the Department adopted rules concerning conjunctive management of ground water and surface water for the entire state. IDAPA 37.03.11.000 to 37.03.11.050. The Department has also developed a calibrated ground water model to determine the effects on the Aquifer and hydraulically-connected reaches of the Snake River and its tributaries from pumping a single well in the Aquifer, from pumping selected groups of wells, and from surface water uses on lands above the Aquifer. In 2004, the Department, working in collaboration with other entities, completed reformulation of that model.

On March 22, 2005, Blue Lakes delivered a letter to the Department demanding that then-Director Karl J. Dreher require the local watermaster to administer water rights as required by Idaho Code § 42-607 in order to supply Blue Lakes with water under its senior rights. On May 2, 2005, Clear Springs delivered letters to the Director making a similar demand. The Director considered the letters to be delivery calls. Without holding a hearing, on May 19, 2005, he issued findings of fact, conclusions of law, and an order requiring curtailment of specific groundwater users with water rights junior to those of Blue Lakes. On July 8, 2005, he issued a similar order with respect to specific groundwater users with rights junior to those of Clear Springs. Several entities, including the Groundwater Users, moved to intervene, and both they and the Spring Users moved for reconsideration and a hearing.

On August 1, 2007, then-Director David R. Tuthill, Jr., appointed a hearing officer to preside over an evidentiary hearing regarding the Spring Users' delivery calls. The hearing began on November 28, 2007, and continued for about twelve days. On January 11, 2008, the hearing officer issued his findings of fact, conclusions of law, and recommendation. After considering objections submitted by the parties, the Director issued a final order on July 11, 2008. Except as modified in the final order, he adopted the former Director's findings of fact and conclusions of law, the hearing officer's recommendations, and the curtailment orders.

Clear Springs filed a petition for judicial review, and Blue Lakes and the Groundwater Users filed cross petitions for judicial review. The district court affirmed most of the final order. The parties moved for reconsideration, and the district court made one modification and issued its final decision. The Groundwater Users appealed, and the Spring Users cross appealed.

II. ISSUES ON APPEAL

Issues Raised by Groundwater Users

A. Did the district court err in holding that the curtailment orders do not violate the Swan Falls Agreement?

B. Did the district court err in holding that the curtailment orders do not violate the full economic development provision of Idaho Code § 42-226?

C. Did the district court err in upholding the Director's determination that the ground water depletions caused material injury to the Spring Users' water rights?

D. Did the district court err in upholding the Director's determination that the Spring Users' delivery calls were not futile?

E. Did the district court err in upholding the Director's findings based upon the ground water model?

F. Did the district court err in failing to set aside the curtailment orders because the Director did not give the Groundwater Users a hearing before issuing the curtailment orders? Issues Raised by Spring Users

G. Did the district court err in failing to order the Director to curtail more ground water pumping?

III. ANALYSIS

When reviewing agency action on a petition for judicial review, the district court must affirm the agency unless it finds that the agency's findings, inferences, conclusions, or decisions are: "(a) in violation of constitutional or statutory provisions; (b) in excess of the statutory authority of the agency; (c) made upon unlawful procedure; (d) not supported by substantial evidence on the record as a whole; or (e) arbitrary, capricious, or an abuse of discretion." Idaho Code § 67-5279(3). "Review on appeal is limited to those issues raised before the administrative tribunal," Johnson v. Blaine County, 146 Idaho 916, 920, 204 P.3d 1127, 1131 (2009), with the exception of "an issue the administrative tribunal lacked the authority to decide," id. at n.2. The district court cannot substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. Idaho Code § 67-5279(1). On an appeal from the district court, we review the decision of the district court to determine whether it correctly decided the issues presented to it. Wright v. Board of Psychological Examiners, 148 Idaho 542, 544-45, 224 P.2d 1131, 1133-34 (2010). "This Court will not consider issues that were not raised before the district court even if those issues had been raised in the administrative proceeding." Marcia T. Turner, L.L.C. v. City of Twin Falls, 144 Idaho 203, 208, 159 P.3d 840, 845 (2007).

A. Did the District Court Err in Holding that the Director Did Not Fail to Administer the Aquifer in Accordance with the Comprehensive Plan Established by the Swan Falls Agreement?

In 1984, the State of Idaho and the Idaho Power Company entered into an agreement to resolve litigation regarding Idaho Power's water rights for hydropower generation at its Swan Falls plant. Idaho Power agreed to subordinate its rights from 8,400 c.f.s. down to an average daily flow (measured at the Murphy gauging station) of 3,900 c.f.s. from April 1 to October 31 and 5,600 c.f.s. from November 1 to March 31. "The purpose of the agreement concerning subordination was to make available more water for future appropriators and to assist in the expansion of other beneficial uses of the water in the Snake River." Miles v. Idaho Power Co., 116 Idaho 635, 637, 778 P.2d 757, 759 (1989).

On October 9, 2007, the Groundwater Users moved for a partial summary judgment in the agency proceedings. One of the issues they asserted was, "Appropriators of spring waters in the Thousand Springs region are precluded from making a delivery call against appropriators of ground water from the East Snake Plain Aquifer so long as minimum Snake River flows are maintained at the Murphy Gauge in accordance with the Swan Falls Agreement." The hearing officer rejected that argument on the grounds that the Spring Users were not parties to the Swan Falls Agreement and the Agreement does not expressly address the issue. The Groundwater Users filed objections to that ruling with the Director, who considered but rejected them.

In the district court proceedings, the Groundwater Users asserted that the Director's curtailment orders violated the obligation to manage the Aquifer in accordance with the minimum flows prescribed by the Swan Falls Agreement. The district court rejected that argument on the ground that the Agreement did not establish minimum flows for specific sub- reaches of the Snake River or spring complexes. "Where the lower court reaches the correct result by an erroneous theory, this Court will affirm the order on the correct theory." Nampa & Meridian Irr. Dist. v. Mussell, 139 Idaho 28, 33, 72 P.3d 868, 873 (2003). By the Swan Falls Agreement, the Idaho Power Company agreed to the subordination of part of its water rights for generating hydroelectric power at the Swan Falls Dam to "subsequent beneficial upstream uses upon approval of such uses by the State in accordance with State law unless the depletion violates or will violate [the unsubordinated rights set forth in the Agreement]." There is nothing in the Agreement indicating that the State purported to subordinate any third party's surface water rights to junior ground water rights. Indeed, the State could not have done so without paying just compensation to the owners of the senior water rights. "In Idaho, water rights are real property." Olson v. Idaho Dept. of Water Resources, 105 Idaho 98, 101, 666 P.2d 188, 191 (1983); Idaho Code § 55-101. "When one has legally acquired a water right, he has a property right therein that cannot be taken from him for public or private use except by due process of law and upon just compensation being paid therefor." Bennett v. Twin Falls North Side Land & Water Co., 27 Idaho 643, 651, 150 P. 336, 339 (1915). "Priority in time is an essential part of western water law and to diminish one's priority works an undeniable injury to that water right holder." Jenkins v. State, Dept. of Water Resources, 103 Idaho 384, 388, 647 P.2d 1256, 1260 (1982). When there is insufficient water to satisfy both the senior appropriator's and the junior appropriator's water rights, giving the junior appropriator a preference to the use of the water constitutes a taking for which compensation must be paid. Montpelier Milling Co. v. City of Montpelier, 19 Idaho 212, 219, 113 P. 741, 743 (1911); Idaho Const. Art. XV, § 3. Thus, the Swan Falls Agreement could not have subordinated the Spring Users' water rights to other appropriators unless the Spring Users had been paid just compensation for such taking.

The Groundwater Users assert that the Agreement "protects all water rights with a priority date prior to October 1, 1984." That is not accurate. Idaho Power subordinated its water rights at the Swan Falls Dam "to those persons who have beneficially used water prior to October 1, 1984, and who have filed an application or claim for said use by June 30, 1985." Although Idaho Power subordinated its water rights to such persons, there is no wording in the Agreement purporting to subordinate any other appropriator's water rights to them. Likewise, there is nothing in the Agreement stating that an appropriator with a priority date before October 1, 1984, would never be subject to a delivery call from an appropriator with a senior water right.

The Groundwater Users also state: "[T]he Agreement required that the minimum flow at Murphy Gauge be increased by 600 cfs, from 3,300 cfs to 3,900 cfs. This secured a greater water supply for Idaho Power as well as spring users in the Thousand Springs area." Again, this is inaccurate.

In 1964, Article XV, § 7, was added to the Idaho Constitution. Idaho Water Resource Bd. v. Kramer, 97 Idaho 535, 541, 548 P.2d 35, 41 (1976). That amendment provided, "There shall be constituted a Water Resource Agency, composed as the Legislature may now or hereafter prescribe, which shall have power to formulate and implement a state water plan for optimum development of water resources in the public interest ." Pursuant to that amendment, the legislature created the Idaho Water Resource Board as the Water Resource Agency. Idaho Code §§ 42-1732 & 42-1734(1).

In 1976, the Idaho Water Resource Board adopted a State Water Plan which established minimum flows at three points along the Snake River. Idaho Water Resource Bd., The State Water Plan - Part Two 116 (1976). "A flow of 3300 cfs on the Snake River at the Murphy gaging station was established." Idaho Power Co. v. State, Dept. of Water Resources, 104 Idaho 575, 590, 661 P.2d 741, 756 (1983).*fn2 The State Water Plan did not reduce Idaho Power's water rights at Swan Falls to 3,300 c.f.s. As we held: "There is no requirement contained therein that the Snake River be depleted to 3300 cfs at Swan Falls . . . . Since we have held that Idaho Power's water rights at Swan Falls are vested, the State Water Plan is not to be construed as affecting those water rights." Id. Thus, because Idaho Power's water rights had not been not reduced to 3,300 c.f.s. by the State Water Plan, the Swan Falls Agreement did not increase them to 3,900 c.f.s. In actuality, "the agreement provided for the subordination of certain water rights claimed by Idaho Power to those of subsequent upstream users," Miles v. Idaho Power Co., 116 Idaho 635, 636, 778 P.2d 757, 758 (1989), thereby reducing, not increasing, the amount of water that Idaho Power was entitled to have at its Swan Falls Dam.

Quoting from a portion of the Swan Falls Agreement, the Groundwater Users argue that it "initiated the Snake River Basin Adjudication (SRBA) and defined 'a sound comprehensive plan for the management of the Snake River watershed . . . a plan best adapted to develop, conserve, and utilize the resources of the region in the public interest.'" That comprehensive plan is apparently to permit all ground water pumping that does not threaten the minimum river flows at the Murphy gauging station agreed to between the State and Idaho Power. In making this argument, the Groundwater Users left out a significant portion of the provision from the Swan Falls Agreement that they quoted. It actually states:

State and Company agree that the resolution of Company's water rights and recognition thereof by State together with the Idaho State Water Plan provide a sound comprehensive plan for the management of the Snake River watershed. Thus, the parties acknowledge that this Agreement provides a plan best adapted to develop, conserve, and utilize the water resources of the region in the public interest. Upon implementation of this agreement, State and Company will present the Idaho State Water Plan and this Agreement to FERC [Federal Energy

Regulatory Commission] as a comprehensive plan for the management of the Snake River Watershed. (Emphasis added.)

It is only the resolution of Idaho Power's water rights that was at issue in the Swan Falls Agreement. The reference to "a comprehensive plan" was to meet the requirements of section 10 of the Federal Water Power Act with respect to hydropower licensing, codified at 16 U.S.C. § 803. When the Agreement was executed, section 10(a) provided:

That the project adopted, including the maps, plans, and specifications, shall be such as in the judgment of the Commission will be best adapted to a comprehensive plan for improving or developing a waterway or waterways for the use or benefit of interstate or foreign commerce, for the improvement and utilization of water-power development, and for other beneficial public uses, including recreational purposes; and if necessary in order to secure such plan the Commission shall have authority to require the modification of any project and of the plans and specifications of the project works before approval.

49 Stat. 842 (emphasis added). The comprehensive plan had nothing to do with allocating water among the various appropriators upstream from the Swan Falls Dam or determining the priorities of their water rights. It was only to meet a federal licensing requirement of the Company's power projects.

The hearing officer noted that the 1986 Idaho State Water Plan commented that "minimum stream flows for the Murphy Gauging Station should provide an adequate supply of water for aquaculture." The Groundwater Users also point to prognostications that the Spring Users would have sufficient water if the river flow at the Murphy gauging station was maintained in accordance with the minimum flows set forth in the Swan Falls Agreement. Prior to that agreement, the Water Resource Board had established a zero minimum flow at Milner Dam. Idaho Water Resource Bd., The State Water Plan - Part Two 116 (1976). The purpose of allowing a zero river flow at Milner Dam was to maximize the amount of water available for development above the dam, including groundwater development in the Aquifer. One of the statutes enacted to implement the Swan Falls Agreement sought to separate water administration above and below the dam.*fn3 In its 1996 State Water Plan, the Water Resource Board recognized that "[t]he exercise of water rights above Milner Dam has and may reduce flow at the dam to zero." Idaho Water Resource Bd., The State Water Plan 17 (1996). "During portions of low-water years, river flows downstream from Milner Dam to the Murphy gaging station consist almost entirely of ground-water discharge from the Thousand Springs reach." Id. at 19. The assumption was that if there was enough spring discharge to have 3,900 c.f.s. downstream at the Swan Falls Dam, there would be enough spring discharge to satisfy the Spring Users' water rights. Such predictions have no legal effect.

The State Water Plans recognized that such assumptions may not be correct. The first plan stated, "Future management and development of the Snake River aquifer may reduce the present flow of springs tributary to the Snake River. If that situation occurs, adequate water for aquaculture will be protected, however, aquaculture interests may need to construct different water diversion facilities than presently exist." Idaho Water Resource Bd., The State Water Plan

- Part Two 118 (1976) (emphases added). Likewise, the second plan acknowledged with respect to aquaculture that "future management and development of the Snake River Plain aquifer may reduce the present flow of springs tributary to the Snake River, necessitating changes in diversion facilities." Idaho Water Resource Bd., The State Water Plan 38 (1986) (emphasis added). Finally, the current water plan recognized the "continued spring flow decline in the Thousand Springs area since the late 1950s." Idaho Water Resource Bd., The State Water Plan 18 (1996). It also commented: "Spring discharge in the American Falls and Thousand Springs reaches of the Snake River are vital to the Snake River Basin and Idaho economy. . In the

Thousand Springs reach, spring flow is the only practical source of water for many of the state's aquaculture facilities." Id. at 19. It declared, "Maintaining these ...


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