Thursday, March 28, 2013

The Demise of Senate Bill 109

The following article was written by David Hartvigsen, one of my partners at Smith Hartvigsen, PLLC, for the Water & The Law newsletter that our firm publishes on a quarterly basis. If you would like to receive an email version of the newsletter, please click here to join our mailing list.

The 2013 General Session of the Utah Legislature recently ended. One of the most significant bills this session was SB 109 - Change Application Procedure, sponsored by Sen. Ralph Okerlund and Rep. Lowry Snow. In fact, Rep. Daniel McCay stated on the House Floor that this was probably the most important policy decision before the legislature this year. But despite extensive work and debate over the last several years, the final move was to send it back for more study between now and next session.

You may recall that for the last four years, the State Engineer has requested that the scope of his review of historical beneficial use in acting upon change applications (that is, his "gatekeeper" role "to keep out bad water rights") be clearly defined by statute. In 2011, the Utah Supreme Court issued the Jensen v. Jones opinion that concluded that the State Engineer currently lacks statutory authority to consider nonuse of a water right when ruling on a change application. As a result, the Water Coalition and Executive Water Task Force helped prepare a proposed bill in the 2012 session (SB187) that would give the State Engineer statutory authority to act as a gatekeeper and consider the amount of water that is "available to be changed based on use or nonuse." A second Supreme Court decision, in the case of Salt Lake City v. Big Ditch Irrigation Co. raised another issue with the change application process involving who can file a change application. SB187 also addressed this issue. SB187 did not make it through the full legislative process in 2012 and was reincarnated as SB109 in the 2013 session. Another change application bill was introduced in the 2013 session as HB123 by Rep. Kay McIff. It addressed, among other things, the issue of shareholder rights regarding change applications on water rights held by water companies.

During the course of this year's session, four new versions of SB109 were prepared. The first substitute version added a "swing out provision" for municipalities whereby the municipalities had the option of having the courts or the Property Rights Ombudsman perform the gatekeeper role of determining whether or not there had been any nonuse. It also gave cities a special process to give them finality of this issue of nonuse so that they could move forward knowing exactly how much water was being dedicated for a specific development project. Substitute #2 refined some of the new concepts added in Substitute #1 and then specified that the special swing out provisions for the municipalities terminated in 2016 at the end of a three-year test period. Substitute #3 merged the shareholder rights provisions from HB123 into SB109. Adoption of Substitute #2 was delayed as Substitute #3 was being developed and before it could be officially adopted, an effort was made to insert an extensive procedure for processing shareholder change applications. This effort resulted in Substitute #4 being adopted in place of Substitute #1.

There are three particularly interesting things about the evolution of SB109, starting with last year's SB187 and ending with Substitute #4. The first is that the gatekeeper authority the State Engineer was seeking was significantly limited. He could look at nonuse only when a change application was protested and then, only if all of the parties agreed to allow him to address the nonuse issue. Otherwise, the issue would be addressed by swinging out to the courts or the Ombudsman and then the parties would proceed with the State Engineer for the rest of the change application process. If the change application was not protested, the State Engineer would not be able to act as a gatekeeper and would have to proceed with the change application without looking at nonuse.

The second interesting thing is that initially members of the House of Representatives felt like they were cut out of the policy making process because they were essentially told that the bill had been through extensive development, negotiations, and review by the water community and therefore the bill (SB109 and Substitutes #1 and #2) shouldn't be changed by the House. Ironically, the same water community felt like they had been cut out of the policy making process by the House because they were not going to get to see Substitute #3, and did not get to see Substitute #4, before being presented on the floor of the House for adoption.

The third item is that through this process, a very detailed and complex proposal evolved ... without review by, and input from, the general members of the water community. The process, though cumbersome, appeared to be generally fair. However, substantial opposition was generated because interested people were not given the chance to be involved in the process.

It appears that these three factors, in some combination or another, doomed Substitute #4 in the waning hours of the session. Substitute #4 was adopted and passed the House late in the session and was sent over to the Senate for the Senate to "concur" with the changes made by the House. It was immediately "circled," or placed on hold, by the Senate. Later in the afternoon, it was uncircled and then the Senate, without debate, refused to accept the House changes. That is, the Senate refused to accept Substitute #4 over Substitute #1 which the Senate had previously approved. When there is a stalemate such as this, a "conference committee" with three Senators and three Representatives is appointed to try to work out a mutually agreeable compromise. With the few hours remaining in the session, it appears that this conference committee process was not actively pursued and the bill was left to die as the session ended at midnight. One final interesting point is that there does not seem to be anything in the list of issues to be addressed by the legislature during the interim on water rights, change applications, or shareholder rights. So, we may be left with the current status of no State Engineer authority to review non-use for a while.

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