2022 CO 22
The Farmers Reservoir and Irrigation Company, Applicant-Appellant/Cross-Appellee
v.
Public Service Company of Colorado; Irrigationists Association; Central Colorado Water Conservancy District; Fort Morgan Reservoir and Irrigation Company; City of Brighton; City of Commerce City; Henrylyn Irrigation District; South Adams County Water and Sanitation District; Town of Lochbuie; Platte Valley Irrigation Company; City of Englewood; City of Aurora; Lower Latham Reservoir Company; Dream Weaver Holdings LLC; City of Thornton; Centennial Water and Sanitation District; Kevin Rein, State Engineer; and Corey DeAngelis, Division Engineer for Water Division 1;
and Opposer-Appellees/Cross-Appellants: Arapahoe County Water and Wastewater Authority, East Cherry Creek Valley Water and Sanitation District, and United Water and Sanitation District.
No. 21SA122
Supreme Court of Colorado, En Banc
May 16, 2022
Appeal
from the District Court Water Division 1, Case No. 16CW3052
Honorable James F. Hartmann, Water Judge
1
Attorneys for Applicant-Appellant/Cross-Appellee: Fairfield
and Woods, P.C. Joseph B. Dischinger Beth Ann J. Parsons
Attorneys for Opposer-Appellee Platte Valley Irrigation
Company: Lyons Gaddis Kahn Hall Jeffers Dworak & Grant,
PC Scott E. Holwick Kara N. Godbehere
Attorneys for Opposer-Appellees Kevin Rein, State Engineer;
and Corey DeAngelis, Division Engineer for Water Division 1:
Philip J. Weiser, Attorney General Paul L. Benington, First
Assistant Attorney General Christopher R. Stork, Assistant
Attorney General
Attorneys for Opposer-Appellees/Cross-Appellants Arapahoe
County Water and Wastewater Authority and East Cherry Creek
Valley Water and Sanitation District: Nazarenus Stack &
Wombacher LLC Brian M. Nazarenus Sheela S. Stack William D.
Wombacher Stacy L. Brownhill
Attorneys for Opposer-Appellee/Cross-Appellant United Water
and Sanitation District: Law Office of Tod J. Smith, LLC Tod
J. Smith
2
Ann
Rhodes, LLC Ann M. Rhodes
No
appearance on behalf of: Public Service Company of Colorado,
Irrigationists Association, Central Colorado Water
Conservancy District, Fort Morgan Reservoir and Irrigation
Company, City of Brighton, City of Commerce City, Henrylyn
Irrigation District, South Adams County Water and Sanitation
District, Town of Lochbuie, City of Englewood, City of
Aurora, Lower Latham Reservoir Company, Dream Weaver Holdings
LLC, City of Thornton, and Centennial Water and Sanitation
District.
CHIEF
JUSTICE BOATRIGHT, JUSTICE MÁRQUEZ, JUSTICE HOOD,
JUSTICE GABRIEL, JUSTICE HART, and JUSTICE SAMOUR joined.
3
OPINION
BERKENKOTTER, JUSTICE
¶1
This case comes to us on appeal from a judgment of the
Division 1 Water Court and concerns the right to use water
that has been the subject of litigation for nearly two
decades. In Case No. 02CW403, and again in Case No. 10CW306,
[1] the
Division 1 Water Court determined, among other things, that
the Farmers Reservoir and Irrigation Company
("FRICO") did not have a decreed right to use
seepage water accruing to a ditch known as the Beebe Seep
Canal. FRICO nonetheless continued to utilize the seepage
water outside the priority system to make additional water
available to its shareholders for irrigation.
¶2
Fast forward to April 18, 2016, when FRICO filed the
underlying application to obtain a decree to use this seepage
within the priority system. More specifically, FRICO sought a
decree confirming absolute and conditional water rights to
use unappropriated (1) water seeping from Barr Lake, and (2)
natural runoff, drainage, waste, return flows, and seepage
water arising in, flowing into, and accruing to the Beebe
Seep Canal (the "Subject Water Rights") to
supplement
4
water deliveries to its shareholders for irrigation.
Following the culmination of stipulations with most of the
twenty initial objectors and, ultimately, a five-day trial,
the water court issued its final judgment confirming,
adjudicating, approving, and decreeing FRICO's use of the
Subject Water Rights contingent upon certain terms and
conditions outlined within the water court's Amended
Findings of Fact, Conclusions of Law, Judgment and Decree of
the Court ("Amended Decree").
¶3
The issues raised by FRICO in this appeal concern three of
the specific terms and conditions that the water court placed
upon FRICO's use of the Subject Water Rights. The issue
raised by three of the objectors in their cross-appeal
concerns the water court's authority to grant certain of
these new rights.
¶4
As articulated more fully below, we hold that the water
court's findings, and its imposition of the challenged
terms and conditions included in the Amended Decree, are
supported by the record and did not violate FRICO's right
to appropriate unappropriated water. We further conclude that
the water court was within its authority to grant FRICO the
absolute rights challenged by the three objectors in their
cross-appeal. Accordingly, we affirm the judgment of the
water court.
5
I.
Facts and Procedural History
A.
Overview
¶5
FRICO is a mutual ditch company that owns and operates a
ditch and reservoir system that provides water to its more
than 500 shareholders for irrigation in Weld and Adams
counties. The underlying decree application involves the Barr
Lake and Milton Lake Divisions of FRICO's system.
¶6
As outlined on the map below-which was admitted as an exhibit
at trial-Barr Lake is situated approximately twenty miles
upstream of Milton Lake. The Beebe Seep Canal, an unlined,
private person-made ditch owned and operated by FRICO, is
used to transport water from Barr Lake to Milton Lake. The
Beebe Seep Canal collects seepage from Barr Lake that is
discharged through toe drains and underflow from Barr Lake,
which is collected in the interceptor ditch below the Barr
Lake Dam, as well as seepage water captured in the Beebe
Draw, [2]including surface runoff, accretions from
groundwater aquifers, irrigation return flows, and irrigation
wastewater.
¶7
The Milton Lake Division primarily receives its water from
the South Platte River, through the Platte Valley Canal, but
FRICO also holds a decree allowing
6
water to be diverted through the Burlington Canal to Barr
Lake, where the water is then carried downstream through the
Beebe Seep Canal to Milton Lake. While FRICO physically
receives seepage water from the Beebe Seep Canal, it did not,
before the decree issued in this case, have any decreed right
to use this water.
¶8
The Beebe Seep Canal also includes diversion structures-the
Bowles Seep Canal and East Neres Canal-that divert and
deliver water for direct use to shareholders. The Subject
Water Rights at issue here include both direct use and
storage structures. Through its application, FRICO sought a
decree confirming absolute and conditional rights to put the
seepage water to direct use for irrigation through the Bowles
Seep Canal or the East Neres Canal.[3] FRICO also sought a decree
confirming its right to store the Subject Water Rights in
Barr Lake, via the Beebe Seep Canal Pump Station or in Milton
Lake, through use of what is described in the Amended Decree
as the Milton Lake Seep Right, to later be used for
irrigation. One of the issues at trial in this case was
whether FRICO should have the right to beneficially use the
Subject Water Rights-particularly the Milton
7
Lake Seep Right-as a supplement to its already-decreed water
rights, particularly its 1909 Milton Lake Storage Right
("1909 Storage Right").
Image
Omitted
8
B.
Previous Decrees Related to the Subject Water Rights
¶9
This is not FRICO's first rodeo. Prior to its present
application, FRICO had been utilizing the seepage water
accruing in the Beebe Seep Canal out of priority and without
a decree as a means of delivering supplemental water to
shareholders, in the full amount released, without deducting
for transit losses (water lost to evaporation or seepage when
it moves from one point to another). This practice was
addressed by the water court in two prior orders: Case Nos.
02CW403 and 10CW306. In both instances, the water court
concluded that FRICO did not have a decreed right to use the
seepage water accruing to the Beebe Seep Canal. ¶10 In
2008, in Case No. 02CW403, the water court made findings as
to the seepage water accruing in the Beebe Seep Canal and
concluded that FRICO was "not entitled to claim water
attributed to the seepage gain accruing to the Beebe [Seep]
Canal" under its senior water rights and that seepage
flows into ditches cannot be used independent of existing
priorities on the river. Thus, the water court held that
FRICO did not have a decreed right to appropriate the seepage
water collecting along and accruing to the Beebe Seep Canal.
¶11
Later, in 2014, in Case No. 10CW306, the water court
reaffirmed that the Beebe Seep Canal seepage water was not
decreed as another supply source or diversion point for FRICO
to use to fill Milton Lake.
9
¶12
Nonetheless, based on what the water court below described as
a "misconception" of these orders, FRICO continued
to use this seepage water for the benefit of its
shareholders. Specifically, FRICO used the seepage water out
of priority to offset transit losses that would otherwise
have reduced the amount of water FRICO delivered to
shareholders, via release from Barr Lake, by nearly
forty-seven percent.
C.
Pertinent Events Preceding Trial
¶13
In its April 18, 2016, application, FRICO identified its
intended options for the Subject Water Rights' use: (1)
store them in Barr Lake, by way of the
(yet-to-be-constructed) Beebe Seep Canal Pump Station, for
later release and use for irrigation; (2) store them in
Milton Lake, through use of the Milton Lake Seep Right, for
later release and use for irrigation; or (3) put the water to
direct use for irrigation through the Bowles Seep Canal and
the East Neres Canal. Twenty parties, including the State
Engineer and Division Engineers (the "Engineers"),
filed in opposition to FRICO's application.
¶14
Before trial, FRICO entered into a stipulation with all of
the opposing parties except East Cherry Creek Valley Water
and Sanitation District, Arapahoe County Water and Wastewater
Authority, and United Water and Sanitation District
(collectively, "EAU").
10
D.
Trial Over Appropriation of the Subject Water Rights
¶15
At trial, FRICO presented evidence of its past use and future
intent to appropriate the Subject Water Rights, as well as
its shareholders' need for additional water for
irrigation. In doing so, it argued that shareholders use
water diverted in priority from the Beebe Seep Canal at the
East Neres Canal and the Bowles Seep Canal directly for
irrigation purposes. It further asserted that the
shareholders later use seepage inflows that are stored in
Milton Lake in priority and then released through the Gilmore
Canal-an outlet canal below Milton Lake-for irrigation. The
Milton Lake Seep Right, FRICO asserted, could serve as
additional water for shareholders' use during years when
FRICO is unable to fill Milton Lake with its 1909 Storage
Right or to offset losses resulting from releases in years
when Milton Lake does fill with the 1909 Storage Right. In
particular, FRICO presented evidence that it had previously
diverted the absolute portion of the Milton Lake Seep Right
in priority both before and after Milton Lake's initial
fill under its 1909 Storage Right, and its shareholders had
put the water to beneficial use.
¶16
FRICO called two witnesses at trial: Scott Edgar, FRICO's
General Manager, and Heather Thompson, P.E. Edgar testified
as to FRICO's day-to-day practices and operations,
including its maintenance, delivery, allocation, and storage
systems. Specifically, Edgar testified concerning FRICO's
practice of diverting
11
water for delivery and release to shareholders, and he
admitted, as he had in his discovery responses, that it was
FRICO's practice to use seepage gains out of priority to
offset transit losses, despite the previous orders from the
water court in Case Nos. 02CW403 and 10CW306 expressly
prohibiting such conduct.
¶17
FRICO called Thompson to testify as an expert in water
resources engineering, water rights administration, and water
rights accounting. Thompson testified as to FRICO's
operations at the Milton Lake Division and its claimed need
for additional water beyond its 1909 Storage Right. After
quantifying the amount of water available to meet the
irrigation needs of FRICO's shareholders, Thompson
testified to the following:
Q. [D]oes that indicate to you that the Milton system is also
water short?
A. It does, because the consumptive irrigation requirement is
1.8 acre-feet per acre, but the water supply under a full
allocation scenario is only approximately .6 acre-feet per
acre.
Q. And does the Milton Lake system always deliver a full
allocation?
A. It does not.
Q. So the Milton division would be even more water short in
the years that the full allocation is not delivered; is that
correct?
A. Yes, that's correct.
¶18
While asserting that the Milton Lake Division is water short
(meaning that shareholders generally do not have enough water
under existing water rights to meet their full irrigation
needs) and could benefit from additional supply,
12
Thompson acknowledged that the 1909 Storage Right did not
include a refill right. Thompson also posited that the Milton
Lake Seep Right could be used to fill or refill Milton Lake,
or it could be used to offset losses resulting from releases.
¶19
Thompson also testified as to the seepage gains diverted at
the East Neres Canal and the Bowles Seep Canal that FRICO
subsequently delivered to shareholders for irrigation. After
reviewing FRICO's accounting of the seepage gains
diverted for irrigation when in priority, Thompson testified
that the East Neres Canal Seep Right was made
absolute[4] on July 2, 2011, when 4.2 cubic feet per
second ("cfs") of seepage gains were diverted
without there being a downstream call. She testified that
"[i]t was free river [that] month, and that water was
put to beneficial use," specifically because it was
"delivered to shareholders and used for
irrigation." Similarly, Thompson testified that the
accounting indicated that FRICO diverted 1.1 cfs of seepage
gains at the Bowles Seep Canal on July 25, 2011, which
established its appropriation date because it "was the
first date that . . . could show that seepage gains were
diverted in-priority and beneficially used."
13
¶20
EAU called its own expert, Matt Bliss, P.E., an expert in
water rights, water resources, groundwater rights, water
rights accounting, water rights administration, and water
supply planning. EAU relied on Bliss's testimony to argue
that FRICO's claim in the application concerning the
Milton Lake Seep Right should be denied outright because the
seep right would not make more water available to
shareholders but, instead, displace water that could
otherwise be diverted into Milton Lake under the 1909 Storage
Right. Bliss testified that, in his view, FRICO's claim
to make the Milton Lake Seep Right absolute was based on
diversions in a year in which FRICO diverted zero acre-feet
under existing storage rights for Milton Lake. FRICO
accomplished this, Bliss explained, by paper-filling its
senior 1909 Storage Right, thereby creating capacity for the
storage of the junior Milton Lake Seep Right.[5] Bliss also
suggested that if the water court granted the application, it
should include terms and conditions on the Milton Lake Seep
Right to prevent FRICO from using the new junior right to
manipulate the priority
14
system and substantially expand Milton Lake's fill
capacity beyond its 1909 Storage Right.
E.
The Water Court's Amended Decree
with Respect
to the Subject Water Rights
¶21
On October 6, 2020, the water court issued its Findings of
Fact, Conclusions of Law, and Judgment. The court directed
FRICO to circulate a proposed decree based on the Judgment,
and it granted the opposing parties additional time
thereafter to comment on FRICO's proposed decree. FRICO
submitted a proposed final decree on December 15, 2020,
containing all the parties' suggested revisions.
¶22
On December 20, 2020, the water court entered its Findings of
Fact, Conclusions of Law, Judgment and Decree of the Court
("Decree"), which approved the Subject Water
Rights, including those at the Bowles Seep Canal and the East
Neres Canal, in addition to those at Barr Lake and Milton
Lake. However, the Decree also imposed some limitations on
the Subject Water Rights-pertinent to this appeal are the
limitations in paragraphs 29, 30, and 36.
¶23
These paragraphs read, in relevant part, as follows:
29. Transit Losses. . . . For the purpose of
quantifying the Subject [Water] Rights, FRICO shall account
for the amount of water released from Barr Lake and
Milton Lake for delivery to shareholders and then
calculate the amount of transit loss if assessed by the
Division Engineer. This will ensure that FRICO does not
divert seepage water out-of-priority or divert others'
recharge water and will allow certainty that FRICO is
delivering the correct amount of water released from storage
to shareholders. This will also ensure that FRICO accurately
accounts for deliveries from FRICO's other water
15
rights and the amount attributable to seepage water diverted
in priority. This will assure that FRICO is not expanding the
Subject [Water] Rights, in the event there is seepage water
available above the amounts decreed to FRICO, for other water
users to appropriate. . . .
30. Out-of-Priority Inflows. . . . FRICO will not
divert water, or place a call, under the Barr Lake Seep Right
or Milton Lake Seep Right if there is any water in the
[owe-the-river ("OTR")[6] accounts in those respective
reservoirs. When FRICO cannot divert under the Milton Lake
Seep Right because of the presence of water in the OTR
account in Milton, all inflows of Seepage Inflow in
Milton Lake shall be accounted for as
[out-of-priority seepage inflow ("OOPSI")]
in FRICO's OTR account consistent with paragraph
20.2.1 above.
. . . .
36. Milton Lake-One Fill. Milton Lake is entitled to
one annual fill from diversions under its existing
1909 Storage Right or from the Milton Lake Seep
Right. When Milton Lake has filled or achieved its winter
fill level, no additional in-priority diversions under the
Milton Lake Seep Right can occur during that water year,
except to increase from the winter fill to the normal fill
level.
(Emphases added.)
¶24
FRICO subsequently filed a motion for reconsideration,
requesting, among other things, that the court omit certain
limiting language in these three paragraphs. FRICO argued
that the record did not support the water court's
limitations and deprived FRICO of its constitutional right to
appropriate unappropriated water to put to beneficial use. In
response, EAU argued that the
16
record and the law did, in fact, support the limiting
language in paragraphs 29, 30, and 36.
¶25
On February 22, 2021, the water court entered an order
denying FRICO's motion regarding these limiting
conditions. The order stated, in relevant part,
The Court has considered the arguments of counsel in the
pleadings and the contents of the record, and the Court finds
that there are ample facts in the record to support the
provisions of paragraphs 29, 30, and 36 as written. The Court
purposely included the language found in those three
paragraphs based on the evidence presented at trial and to
prevent injury to other water users. The Court agrees with
the arguments presented by EAU in their response to
FRICO's motion for reconsideration.
¶26
The water court then entered an Amended Decree, which
constituted the water court's final judgment.
¶27
FRICO appealed the terms and conditions of paragraphs 29, 30,
and 36 of the Amended Decree to this court.[7] EAU filed a
cross-appeal opposing the water
17
court's finding that evidence presented at trial
supported FRICO's claim to make a portion of the East
Neres Seep Right and the Bowles Seep Canal Right
absolute.[8]¶28 After outlining the standard of
review and certain relevant legal principles, we turn our
attention to each of these issues.
II.
Analysis
¶29
First, we identify the applicable standards of review. Next,
we discuss Colorado's prior appropriation system and the
various terms and conditions that a water court may include
in a decree to limit the use of a water right. Then, we
discuss the law surrounding the water court's exercise of
ancillary jurisdiction over this case and the water
court's decision to grant absolute portions of the
claimed water rights. Finally, we conclude that the water
court did not err by awarding FRICO the new water rights or
by placing certain limitations on the use of the Subject
Water Rights. Therefore, we affirm the water court's
judgment and Amended Decree.
18
A.
Standards of Review
¶30
On appeal, we accept a water court's factual findings
"unless they are so clearly erroneous as to find no
support in the record." Burlington Ditch Reservoir
& Land Co. v. Metro Wastewater Reclamation Dist.,
256 P.3d 645, 660 (Colo. 2011); see also Grand Valley
Water Users Ass'n v. Busk-Ivanhoe, Inc., 2016 CO 75,
¶ 21, 386 P.3d 452, 460. We review a water court's
conclusions of law de novo. Burlington Ditch, 256
P.3d at 661.
B.
Relevant Legal Principles
¶31
Under Colorado law, natural stream water is considered public
property for public use. Dill v. Yamasaki Ring, LLC,
2019 CO 14, ¶ 24, 435 P.3d 1067, 1074. Because water
rights are classified as usufructuary rights in Colorado, an
individual or entity cannot own water but, instead, may own
the right to use the water within the bounds of the prior
appropriation system. Burlington Ditch, 256 P.3d at
661; Grand Valley, ¶ 28, 386 P.3d at 461.
¶32
An appropriation, under Colorado's prior appropriation
system, occurs when a person or entity places "a
specified quantity of water to an actual beneficial
use." Burlington Ditch, 256 P.3d at 661. The
need to place the water "to an actual beneficial
use" ensures that the appropriation adheres to
"[t]he anti-speculation doctrine, which has existed in
Colorado prior appropriation water law since its inception in
Territorial and early-Statehood days" and seeks to
"prevent[]
19
unlawful enlargements, as well as curb[] the appropriation of
water not needed for actual beneficial use."
Id.
¶33
The General Assembly has defined beneficial use as "the
use of that amount of water that is reasonable and
appropriate under reasonably efficient practices to
accomplish without waste the purpose for which the
appropriation is lawfully made." § 37-92-103(4),
C.R.S. (2021). Once an appropriation is established and the
appropriator has placed the water to beneficial use, the
water right vests. Dill, ¶ 24, 435 P.3d at
1074. The water right may then be used based on its priority
relative to other junior and senior water rights drawn from a
common source. See id.; see also §
37-92-103(10) ("'Priority' means . . . the
relative seniority of a water right or a conditional water
right in relation to other water rights . . . [that] deriv[e]
their supply from a common source.").
¶34
The holder of a water right may file an application with the
water court to request that the right be adjudicated and
memorialized in a water decree. See Dill, ¶ 25,
435 P.3d at 1074. Significantly, "a water right owner is
not entitled to have his or her water right administered
within the priority system until he or she obtains a judicial
decree confirming the water right." V Bar Ranch LLC
v. Cotten, 233 P.3d 1200, 1208 (Colo. 2010). A decree
serves to "confirm[] a pre-existing water right"
that has already been achieved by way of appropriation.
Dill, ¶ 25, 435 P.3d at 1074 (quoting
Shirola v. Turkey Cañon Ranch Ltd. Liab. Co.,
937 P.2d 739, 748 (Colo.1997)).
20
Once a water court adjudicates an appropriation and issues a
decree, the water right is legally enforceable. Id.;
V Bar Ranch, 233 P.3d at 1208. However, a water
court may impose certain terms and conditions in connection
with the exercise of said water right. See City of
Thornton v. Bijou Irrigation Co., 926 P.2d 1, 48 (Colo.
1996) (noting that water decrees may be subject to terms and
"conditions designed to protect other appropriators
against injury").
¶35
Bearing these legal principles in mind, we turn to the issues
before us.
1.
The Water Court Did Not Err by Imposing a One-Fill Limitation
on Diversions to Milton Lake
¶36
FRICO takes issue with the language in paragraph 36 of the
Amended Decree, which provides that "Milton Lake is
entitled to one annual fill from diversions under
its existing 1909 Storage Right or from the Milton
Lake Seep Right," and that "[w]hen Milton Lake has
filled or achieved its winter fill level, no additional
in-priority diversions under the Milton Lake Seep Right can
occur during that water year, except to increase from the
winter fill to the normal fill level." (Emphases added.)
It contends that restricting the Milton Lake Seep Right in
this manner improperly limits the right to serve only as a
supplemental supply under its first fill. This, FRICO argues,
is unconstitutional, inconsistent with Colorado law, and is
not supported by the evidence in the record. We disagree.
¶37
Our constitution makes clear that "[t]he right to divert
the unappropriated waters of any natural stream to beneficial
uses shall never be denied." Colo. Const.
21
art. XVI, § 6. This right is further grounded in
statute. See § 37-92-305(9)(a), C.R.S. (2021)
("No claim for a water right may be recognized or a
decree therefor granted except to the extent that the waters
have been diverted, stored, or otherwise captured, possessed,
and controlled and have been applied to a beneficial use . .
. ."). Though this right is both constitutional and
statutory, it is not absolute.
¶38 For example, the right may not be exercised in a
manner that would cause injury to other water users: "No
water storage facility may be operated in such a manner as to
cause material injury to the senior appropriative rights of
others." § 37-87-101(1)(a), C.R.S. (2021). To that
end, water courts maintain the authority to impose terms and
conditions on the exercise of water rights to prevent injury
to other water users. See Bijou Irrigation Co., 926
P.2d at 48. As such, a water court may include a term or
condition in a decree-such as a "one-fill rule"-in
order to prevent injury to senior appropriative water rights
without impeding upon a party's right to appropriate
unappropriated water. See Burlington Ditch, 256 P.3d
at 667. A one-fill limitation, in particular, serves to
"set and administer diversion limitations on storage
rights to prevent unlawful enlargement and injury to junior
appropriators." Id.
¶39
Preventing the unlawful enlargement of a decreed water right
is particularly important when dealing with a storage right
because "[s]torage itself is not a beneficial use;"
rather, it is the subsequent use-such as for irrigation-that
22
constitutes "the beneficial use for which water is
stored." Id. at 663. This court has continued
to recognize the benefit of the one-fill limitation,
including the benefit it provides to the State Engineer's
Office, which may use it as a mechanism to "curtail
diversions that may unlawfully enlarge a decree."
Id.; see North Sterling Irrigation Dist. v.
Simpson, 202 P.3d 1207, 1211 (Colo. 2009) (concluding
that a fixed water year, accompanied by a one-fill
limitation, enables the State Engineer's Office to
lawfully limit and enforce storage rights). Such a rule
serves to prevent injury to other appropriators.
¶40
To support its argument, FRICO points to Thompson's
expert testimony that the Milton Lake Division was water
short and displayed a need for additional water beyond that
provided by its 1909 Storage Right to meet shareholder
irrigation needs. In her testimony, Thompson noted that
Milton Lake does not always deliver its full allocation under
the 1909 Storage Right-which she conceded did not include a
refill right. Nonetheless, in her view, the Milton Lake Seep
Right could provide another means of reaching Milton
Lake's full allocation or provide a means of offsetting
losses resulting from releases. Her testimony, however, was
refuted by EAU's expert, Bliss.
¶41
Bliss testified that FRICO essentially manipulated its claim
to make the
Milton
Lake Seep Right absolute because it based its diversions on a
year in which FRICO diverted zero acre-feet under the 1909
Storage Right. FRICO did that, Bliss
23
explained, by creating capacity for the storage of the Milton
Lake Seep Right by paper-filling its 1909 Storage Right.
¶42
True, as FRICO points out, the water court was not ultimately
persuaded by EAU's argument, based on Bliss's
testimony, that the absolute claim for the Milton Lake Seep
Right should be dismissed outright because it did
not satisfy the exhaustion requirements described in
Upper Eagle Regional Water Authority v. Wolfe, 2016
CO 42, ¶ 21, 371 P.3d 681, 687 (involving a claim for
conditional water rights). But the water court was also not
completely persuaded by Thompson's testimony, and,
FRICO's argument aside, there is no real question that
the water court considered Bliss's concerns in entering
its October 6, 2020, Findings of Fact, Conclusions of Law,
and Judgment, and later in determining what terms and
conditions to impose.
¶43
Specifically, EAU's closing brief detailed their concerns
about FRICO's use of the new junior water right, if
awarded, to fill Milton Lake in lieu of its existing absolute
water rights, and whether the junior Milton Lake Seep Right
would be used to manipulate the priority system to the
detriment of EAU and other water users. In its October 6,
2020, Findings of Fact, Conclusions of Law, and Judgment, the
water court addressed EAU's concerns by describing how
the operation of the Milton Lake Seep Right would not result
in manipulation of the priority system so long as it was used
as an alternate fill source for Milton Lake. The water court
24
subsequently added paragraph 36, at EAU's request. Then,
when FRICO sought reconsideration of paragraph 36's
inclusion, EAU responded by repeating the same concerns it
raised in its closing brief. And, when the water court denied
FRICO's motion for reconsideration, the water court
expressly noted its agreement with the arguments presented by
EAU in their response to FRICO's motion for
reconsideration.
¶44
Thus, the one-fill limitation in paragraph 36 serves to
protect other water users from injury. This is because
operation of the Milton Lake Seep Right in lieu of the 1909
Storage Right, in connection with the single-fill limit,
makes a like amount of water available to other
appropriators. We further conclude that the limitation
imposed in paragraph 36 of the Amended Decree is supported by
Bliss's testimony that, without this type of limitation,
FRICO could use the new junior right-which would add a second
decreed source of physical supply of water to Milton Lake-to
expand the 1909 Storage Right and to manipulate the priority
system to the detriment of other water users.
¶45
And, as the water court noted, the limitation still allows
FRICO to utilize its Milton Lake Seep Right under certain
circumstances: "Although Milton Reservoir typically
fills each year, there are occasions when FRICO is unable to
fill the reservoir with its existing sources." This
limitation thus allows FRICO to use diversions under the
Milton Lake Seep Right to supplement water sources from
25
its senior rights to Milton Lake on those occasions. And,
rather than effectively permitting the enlargement of the
total volume of water FRICO may store in Milton Lake beyond
that of the 1909 Storage Right, see Burlington
Ditch, 256 P.3d at 667, the water court emphasized
Milton Lake's one-fill limitation in paragraph 36 as a
means of prohibiting FRICO from improperly enlarging its
senior storage right and preventing injury to other
appropriators.
¶46
Under these circumstances, the water court did not violate
FRICO's constitutional or statutory right to appropriate
unappropriated water to put to beneficial use. Rather, the
water court properly maintained limits on such use to prevent
injury to other water users, expressly confirming that it
"purposely included the language found in [this]
paragraph[] based on the evidence presented at trial"
and that the language was incorporated "to prevent
injury to other water users." Because the limitation was
necessary to prevent injury to other water users and was not
clearly erroneous, we affirm the water court's inclusion
of paragraph 36 in the Amended Decree.
2.
The Water Court Appropriately Required FRICO to Classify
Seepage Inflows as OOPSI When Water is Present
in Its OTR Account
¶47
FRICO next contends that the water court violated FRICO's
constitutional and statutory right to appropriate
unappropriated water to put to beneficial use
26
and that the limiting condition set forth in paragraph 30 of
the Amended Decree is not supported by the record.
¶48
This limiting condition relates to FRICO's Milton Lake
OTR account. An OTR account is an administrative accounting
method used to track out-of-priority inflows stored in a
reservoir. See Colo. Div. of Water Res., General
Administration Guidelines for Reservoirs 1, 30 (2011)
https://dnrweblink.state.co.us/dwr/
DocView.aspx?id=3579805&dbid=&cr=1
[https://perma.cc/XM2P-E8XS]. This accounting method measures
water inflow fluctuations-unmeasured gains or losses from the
reservoir-that are then accounted for in the reservoir's
OTR account as a means of maintaining the proper mass
balance. Id.
¶49
Specifically, this limiting condition prevents FRICO from
diverting water, or placing a call under the Subject Water
Rights, particularly the Milton Lake Seep Right, when there
is water in the division's OTR account. Furthermore, it
provides that when "FRICO cannot divert under the Milton
Lake Seep Right because of the presence of water in the OTR
account . . . all inflows of Seepage Inflow in Milton Lake
shall be accounted for as OOPSI in FRICO's OTR
account."
¶50
FRICO argues that this limit represents an unconstitutional
infringement on its right to appropriate and store
unappropriated water. Specifically, it contends that when
there is no call on the South Platte River below the Powell
Spillway,
27
during free river conditions, [9] the seepage inflows amount to
unappropriated water that it may store and deliver to
shareholders even when there is water in the Milton Lake OTR
account. FRICO additionally claims that this limitation would
essentially require it to fill its Milton Lake OTR account
with unappropriated water while also trying to drain the same
account so that it may properly store the Milton Lake Seep
Right. We disagree.
¶51
Certainly, we acknowledge the constitutional and statutory
right to appropriate and store unappropriated waters and
place that water to beneficial use. Colo. Const. art. XVI,
§ 6; § 37-92-305(9)(a). But FRICO is not simply
storing unappropriated water and putting it to beneficial
use. Characterizing it as such is an oversimplification.
Contrary to FRICO's argument, the existence of free river
conditions does not permit FRICO to circumvent its accounting
requirements. This is because the circumvention of those
requirements would necessarily injure both the river and the
water rights of other appropriators by preventing the
recirculation of water held out of priority. See
Burlington Ditch, 256 P.3d at 661
28
("Injury involves diminution of the available water
supply that a water right holder would otherwise enjoy . . .
.").
¶52
FRICO must first resolve any present injury to the
South Platte River-and senior appropriators-caused by its
storage of seepage inflow in Milton Lake while there is water
in its OTR account before it may store the Milton
Lake Seep Right. Thus, the paragraph 30 condition does not
violate FRICO's constitutional and statutory right to
store unappropriated waters but, instead, places limits upon
the right where its exercise causes injury to other water
users. See Bijou Irrigation Co., 926 P.2d at 48.
¶53
This condition also aligns with the Engineers' duty to
"administer, distribute, and regulate the waters of the
state," § 37-92-501(1), C.R.S. (2021). As part of
their duties, the Engineers are tasked with accounting for
diversions and attributing them, in priority, to available
water rights. Upper Eagle, ¶ 17, 371 P.3d at
686; see also § 37-92-502(2)(a), C.R.S. (2021)
("Each diversion shall be evaluated and administered on
the basis of the circumstances relating to it and in
accordance with provisions of this article and the court
decrees adjudicating and confirming water rights.").
¶54
This condition assists the Engineers in their duty to order
that a reservoir maintain an OTR account and to order the
release of the water improperly stored "to [e]nsure that
such released waters are delivered to those owners or users
of
29
water rights who are entitled to the same and to [e]nsure
that the release will not cause damage." §
37-92-502(3).
¶55
Finally, FRICO's arguments regarding paragraph 30 ignore
its stipulation with the Engineers not to divert water under
the Milton Lake Seep Right when there is water in the Milton
Lake OTR account. The stipulation provides that FRICO must
account for all seepage inflows to Milton Lake as
OOPSI[10] owed to the river. While FRICO argues
that this stipulation does not apply during free river
conditions, the stipulation does not actually say that. In
fact, the stipulation does not distinguish at all between
when free river conditions do and do not exist.
¶56 And, despite FRICO asserting the contrary, it
"may stipulate away valuable rights provided it is not
in violation of public policy." USI Props. E., Inc.
v. Simpson, 938 P.2d 168, 173 (Colo. 1997). We conclude,
under these particular circumstances, that FRICO stipulated
away the right to divert such water and that its stipulation
does not constitute a violation of public policy.
¶57
FRICO must pay its debt to the river before accruing more
water via the Milton Lake Seep Right. This serves to make the
river whole while also allowing FRICO to obtain water for
storage and subsequent use by its shareholders.
30
¶58
Thus, the water court's inclusion of the condition in
paragraph 30 of the Amended Decree does not run afoul of
FRICO's constitutional and statutory right to appropriate
and store unappropriated water, is consistent with the
parties' pre-trial stipulation, and is necessary to
prevent injury to other water users. Because the water
court's finding is supported by ample evidence in the
record, it is not clearly erroneous. For all of these
reasons, we affirm the water court's inclusion of the
limitation in paragraph 30 of the Amended Decree.
3.
The Water Court Had Ancillary Jurisdiction Over Quantifying
Transit Losses in the Gilmore Canal
¶59
FRICO's final argument concerns the limiting condition
the water court imposed in paragraph 29 of the Amended
Decree. It provides: "For the purpose of quantifying the
Subject [Water] Rights, FRICO shall account for the amount of
water released from Barr Lake and Milton Lake for
delivery to shareholders and then calculate the amount of
transit loss if assessed by the Division Engineer."
(Emphasis added.)
¶60
Because the Beebe Seep Canal is situated between Barr Lake
and Milton
Lake,
and due to the structure of those divisions, all of
FRICO's claimed points of diversion are located above
Milton Lake. Meanwhile, many of FRICO's shareholders
within the Milton Lake Division receive their water by way of
the Gilmore Canal, which is nested below Milton Lake. FRICO
argues that the water court lacked jurisdiction to require it
to calculate and quantify transit losses
31
resulting from releases in and below Milton Lake
through the Gilmore Canal because the Subject Water Rights
that FRICO sought decreed rights to were accruing to the
Beebe Seep Canal above Milton Lake. Again, we
disagree.
¶61
Water courts have exclusive jurisdiction over all water
matters. § 37-92-203(1), C.R.S. (2021). "[A]n
action for determination of a water right or a change of
water right, each of which concerns the right to use of
water, is a water matter within the exclusive jurisdiction of
the water judge." Crystal Lakes Water & Sewer
Ass'n v. Backlund, 908 P.2d 534, 540 (Colo. 1996)
(quoting Bijou Irrigation Dist. v. Empire Club, 804
P.2d 175, 180 (Colo. 1991)); see also Tonko v.
Mallow, 154 P.3d 397, 404 (Colo. 2007) ("Water
matters involve determinations regarding the right to use
water, the quantification of a water right, or a change in a
previously decreed water right."). And a water matter,
as this court has previously stated, turns on "the legal
right to use . . . water (acquired by
appropriation)." Crystal Lakes, 908 P.2d at 540
(quoting Humphrey v. Sw. Dev. Co., 734 P.2d 637, 640
(Colo. 1987)); see also Glover v. Serratoga Falls
LLC, 2021 CO 77, ¶ 17, 498 P.3d 1106, 1113
("Whether a claim constitutes a water matter turns on
the distinction between 'actions involving the
use of water and those involving the
ownership of a water right.'" (quoting
Kobobel v. Colo. Dept. of Nat. Res., 249 P.3d 1127,
1132 (Colo. 2011)). And when the right to use water is
affected by the water court's determination,
32
then the issue constitutes a water matter within the water
court's jurisdiction. See Crystal Lakes, 908
P.2d at 541-42.
¶62
Furthermore, this court has held that a "water court may
resolve ancillary issues presented in [a] case that are not
water matters" when the "resolution of those
ancillary issues would directly affect the outcome of water
matters within the exclusive jurisdiction of the water
court." Id. at 543. Put differently, once a
water court has jurisdiction over a water matter, it
maintains exclusive jurisdiction over other subjects and
matters considered ancillary or attendant to the original
matter. See id.
¶63
In light of the evidence that FRICO had previously been using
OOPSI accruing to the Beebe Seep Canal to offset transit
losses for two decades, thus increasing the amount of water
available for delivery to shareholders-even though two
separate court orders explained that FRICO had no right to
the seepage inflows-the water court necessarily had exclusive
and ancillary jurisdiction over this matter. Because the
Gilmore Canal is part of the greater FRICO system and the
Milton Lake Division, the water court necessarily had
jurisdiction to require FRICO to account for transit losses
in the Gilmore Canal to prevent similar actions from
occurring through the release of the Milton Lake Seep Right.
33
¶64
Despite the prior orders in Case Nos. 02CW403 and 10CW306,
FRICO continued to use seepage water accruing in the Beebe
Seep Canal to offset the transit losses otherwise
attributable to releases of water from Barr Lake through the
Beebe Seep Canal, Bowles Seep Canal, and East Neres Canal.
This ultimately increased the amount of water delivered to
FRICO shareholders for beneficial use by as much as
forty-seven percent.
¶65
In fact, FRICO continued to claim that it possessed the right
to use seepage water accruing to the Beebe Seep Canal under
its prior decrees until the water court expressed its
significant concern regarding this view mid-trial. Under
these specific circumstances, the water court necessarily had
jurisdiction to require that FRICO account for transit losses
in the Milton Lake Division, including here in the Gilmore
Canal. Because the Gilmore Canal is part of the greater FRICO
system, and particularly the Milton Lake Division, the water
court-under these particular circumstances-necessarily could
impose a condition to prevent injury to other water users.
Such a requirement seeks to ensure that FRICO does not engage
in similar behavior regarding the release of the Milton Lake
Seep Right. As the water court indicated in paragraph 29,
such transit loss accounting was necessary to "ensure
that FRICO does not divert seepage water
out-of-priority," as Edgar, FRICO's General Manager,
admitted that it had done in the past.
34
¶66
Evidence of FRICO's long-standing past practice of
diverting seepage water out of priority within the Milton
Lake Division supports the water court's inclusion of
this condition to ensure that FRICO properly accounts for the
water it is entitled to use under the Subject Water Rights
awarded in the present case and is necessary to prevent
injury to other water users. As such, the water court did not
err by requiring such transit loss accounting, and thus we
affirm the inclusion of paragraph 29 in the Amended Decree.
4.
FRICO Placed Absolute Portions of the Bowles Seep and East
Neres Seep Canals Seep Rights to Beneficial Use
¶67
EAU argues that because FRICO diverted seepage water out of
priority at the Bowles Seep Canal and the East Neres Seep
Canal, FRICO should not now be able to claim such diversions
as the basis for an absolute water right. EAU also contends
that FRICO did not know how or where the water would be used,
thus making the diversions speculative. We disagree.
¶68
Appropriation, pursuant to section 37-92-103(3)(a), requires
"the application of a specified portion of the waters of
the state to a beneficial use." However, "no
appropriation of water, either absolute or conditional, shall
be held to occur when the proposed appropriation is based
upon the speculative sale or transfer of the appropriative
rights to persons not parties to the proposed
appropriation." Id. One way such speculation
occurs is when the appropriator "does not have a
specific plan and intent to divert, store, or otherwise
capture,
35
possess, and control a specific quantity of water" to
put toward a beneficial use. § 37-92-103(3)(a)(II).
¶69
In contrast, a water right is considered absolute or
perfected "only by actual application of the
water to beneficial use." Burlington Ditch, 256
P.3d at 662 (emphasis added). Conditional water rights
require "reasonable diligence in actualizing the
intended appropriation," whereas an absolute water right
"confirms that an appropriative right has vested,"
which includes the identification of the right's place in
the priority system and the amount of the water right
conferred. Empire Lodge Homeowners' Ass'n v.
Moyer, 39 P.3d 1139, 1147-48 (Colo. 2001). Thus, the
examination of an absolute water right no longer rests on the
intended use but, instead, on the actual beneficial use of
the specified quantity of water.
¶70
At trial, FRICO's expert, Thompson, testified to
FRICO's practice of diverting seepage inflows at the
Bowles Seep Canal and East Neres Canal during free river
conditions that FRICO thereafter delivered to its
shareholders for irrigation. Specifically, Thompson testified
that the East Neres Canal Seep Right was made absolute on
July 2, 2011, when 4.2 cfs of seepage gains were diverted,
and the Bowles Seep Canal Right was made absolute on July 25,
2011, when 1.1 cfs of seepage gains were diverted in priority
without there being a downstream call (i.e., during free
river conditions).
36
¶71
EAU objected, arguing that FRICO's past diversions of
seepage at the Bowles Seep Canal and the East Neres Canal
were out of priority and that FRICO should not be able to
rely on those diversions as the basis for an absolute water
right. They also asserted that FRICO's diversions were
speculative because FRICO did not necessarily know how or
where free water would be used at the time it was diverted.
However, EAU, through its expert, Bliss, also conceded that
the Bowles Seep Canal and East Neres Canal were capable of,
and in fact had been, delivering unappropriated seepage to
shareholders from the Beebe Seep Canal. Bliss additionally
conceded that FRICO's shareholders had a demonstrated
need for additional water. Thus, there is ample evidence in
the trial record that FRICO had been diverting a measurable,
and accounted for, amount of unappropriated water in priority
at the Bowles Seep Canal and East Neres Canal, which FRICO
was thereafter putting to beneficial use.
¶72
Thus, we conclude that the water court did not err in
awarding FRICO the absolute portions of the East Neres Canal
Seep Right and the Bowles Seep Canal Seep Right. Therefore,
we affirm the water court's inclusion of this award in
its Amended Decree.
III.
Conclusion
¶73
For the above stated reasons, we conclude that the challenged
limitations in the Amended Decree do not violate FRICO's
constitutional and statutory right to
37
appropriate unappropriated water for beneficial use. We
further conclude that the water court's factual findings
concerning these limiting conditions and its award to FRICO
of the challenged water rights are not clearly erroneous.
Thus, we affirm the water court's Amended Decree.
38
---------
Notes:
[1] Findings of Fact, Conclusions of Law,
and Order, In re Farmers Reservoir & Irrigation
Co., Civ. No. 02CW403 (D. Colo. Sept. 5, 2008)
("Case No. 02CW403"); Findings of Fact, Conclusions
of Law, Judgment and Decree of the Water Court, In re
Arapahoe Cnty. Water & Wastewater Auth., Civ. No.
10CW306 (D. Colo. Apr. 2, 2014) ("Case No.
10CW306").
[2] The Beebe Draw is hydrologically
connected to the South Platte River and encompasses Barr
Lake, the Beebe Seep Canal, and Milton Lake.
[3] The water court decreed 27.0 cubic
feet per second ("cfs") for direct use of the
Bowles Seep Canal Seep Right, of which 9.9 cfs is absolute
and 17.1 cfs is conditional. For the East Neres Canal Seep
Right, the water court decreed 43.0 cfs for direct use, of
which 25.0 cfs is absolute and 18.0 cfs is
conditional.
[4] An absolute water right is one that is
granted permanent status within the priority system once it
has been appropriated and put to beneficial use. See
Empire Lodge Homeowners' Ass'n v. Moyer, 39 P.3d
1139, 1148 (Colo. 2001).
[5] A paper fill is an accounting
procedure that is used, for example, when water is stored
under a junior water right before a senior water
right has filled. See Colo. Div. of Water Res.,
General Administration Guidelines for Reservoirs 1,
13 (2011)
https://dnrweblink.state.co.us/dwr/DocView.aspx?id=3579805&dbid=&cr=1
[https://perma.cc/XM2P-E8XS]. This would require the
reservoir to charge the amount stored against the senior
water right and would count toward the senior water
right's volumetric limit. Id.
[6] An OTR account tracks water that is
stored out of priority in a reservoir.
[7] FRICO raises the following three
issues on appeal:
1. Whether the water court infringed on FRICO's
constitutional and statutory right to appropriate
unappropriated water by limiting Milton Lake to one annual
fill from diversions under its existing 1909 Storage Right
and the claimed new, junior Milton Lake Seep Right.
2. Whether the water court infringed on FRICO's
constitutional right to appropriate unappropriated water by
requiring FRICO to account for all seepage inflow to Milton
Lake as out of priority when there is water in FRICO's
Milton Lake OTR account.
3. Whether the water court lacked jurisdiction to
require FRICO to account for transit losses on releases from
Milton Lake for delivery to stockholders "for the
purpose of quantifying the Subject Rights" even though
the Subject Rights do not arise in or below Milton
Lake.
[8] EAU's cross-appeal raises one
additional issue:
Whether the facts that gave rise to the water rights
granted to FRICO by the water court satisfied the definition
of "appropriation" under section 37-92-103(3)(a),
C.R.S. (2021), or whether the water court erred in awarding
FRICO new water rights.
[9] When operating under free river
conditions "there is sufficient natural supply to
satisfy all water uses, whether decreed or undecreed,"
Empire Lodge, 39 P.3d at 1149 n.14, thereby
potentially allowing additional water to become available for
appropriation.
[10] OOPSI is water used out of
priority.
---------