With today’s orders list, the Texas Supreme Court issued one long-awaited decision about water rights in Texas. It did not grant any other cases for review.

Edwards Aquifer Authority v. Burrell Day and Joel McDaniel, No.  08-0964 (Hecht, J.).

This was one of the longest-pending cases on the Court’s docket and attracted two dozen amicus filings. It led to a 49-page slip opinion running through complicated administrative and constitutional questions. But the opinion’s opening sums up the new legal holding in two sentences:

We decide in this case whether land ownership includes an interest in groundwater in place that cannot be taken for public use without adequate compensation guaranteed by article I, section 17(a) of the Texas Constitution. We hold that it does.

That sounds simple enough. Texas recognizes a property interest of each landowner in any “groundwater in place” beneath their property.

The district court below had ruled for the aquifer authority, holding that there could be no taking as a matter of law. The court of appeals reversed that summary judgment and ordered a remand for further proceedings. Today, the Supreme Court affirmed the court of appeals’s disposition. These plaintiffs will be allowed to proceed on their takings claim.

Much of the opinion tries to place this rule in context, and in so doing, will set the framework for future water-rights litigation (and legislation) in Texas.### What makes the Edwards Aquifer Authority Act a little different

In 1993, the Texas Legislature brought water rights in central Texas under the regulation of a new agency. The concept was to freeze each landowner’s water use and water rights roughly in place, with an overall usage cap set by law.

Except for a small amount of water usage for which each land owner was exempt, any water use would require a permit. And the permits, in turn, would look backwards to the level of historical use from groundwater sources before the law went into effect. If lots of groundwater was used then, a landowner could get a permit to use lots of water now. If not much groundwater was used then, a landowner is basically out of luck and cannot change the use of his property today.

Against that backdrop, these plaintiffs sought a permit for the use of 700 acre-feet of water per year. (( That works out to about 228 million gallons. )) The authority eventually denied that permit, concluding that the water used during the historical period had not been groundwater but instead surface water (from a lake on their property) that would not qualify them for a larger groundwater permit now. Instead of 700 acre-feet, it awarded them only 14 acre-feet of usage rights.

The takings claim: Is there a property interest?

A threshold question to a constitutional takings claim is whether this law recognizes a property interest at all. Here, the Court concluded that a landowner does have a property interest in “groundwater in place” — not moving through an underwater river or similar transportation network.

The aquifer authority argued that there was no property interest here because, in practice, the “rule of capture” would allow a neighbor to extract as much water as they pleased, even if the effect was to deplete the reservoir.

The Court looked to the oil and gas context for support (p. 21). It noted that a similar rule of capture controlled there — in the absence of government regulation. In the oil and gas context, a landowner was recognized to have a property interest, even though the practical effect of a neighbor’s drilling would be to diminish the reserves under both owners’ land. The Court rejected the argument that this made the property interest illusory.

The Court also gave a nod to the increasingly common view that water is, in terms of importance, the new oil (p. 25):

Although today the price of crude oil is hundreds of times more valuable than the price of municipal water, the price of bottled water is roughly equivalent to, or in some cases, greater than the price of oil. To differentiate between groundwater and oil and gas in terms of importance to modern life would be difficult.

Looking forward: There is a property right, but is there a taking?

The Court concluded that it was a complex question whether this landowner’s property had been impermissibly taken. And because of the procedural posture — summary judgment in the aquifer authority’s favor below — the Court did not have to give a definitive answer, instead just remanding for further proceedings.

But the Court’s discussion of the factors involved will shape not only the future trial of this case, but also future legislative attempts to address water rights in Texas.

The Court explained that water regulation could, in important ways, be different from oil and gas regulation. It approved the concept that water permits could be set based on future use and value to the public good rather than, as with oil and gas, mere surface area (p. 41).

But its analysis suggests that a system keyed on historical use might have a harder time meeting the constitutional test. The Court saw some perverse incentives in a system that rewarded past water hogs with valuable, transferrable rights while discouraging more modern, efficient development of land. (pp. 42-43). It also noted that many permits are bought and sold, not for use of a shared public resource that might justify restricting a different landowner’s current use, but instead as hedges or investment vehicles.

Because of the procedural posture — rejecting summary judgment — the Court’s holding was narrow. But the concerns it raises, especially the idea that a backwards-looking system faces a more difficult constitutional test than one based on current use, could shape future water-rights debates in Texas.

Other landowners within the Edwards Aquifer may well bring their own takings claims. It is not clear whether these will be significant in volume. But the opinion’s closing pages are surely meant to inform future legislative debates.

Although the case has been about the unusual permit system used in the Edwards Aquifer, these pages draw a helpful contrast to the Legislature’s “general approach” in most areas of the state. That approach, we are told, has required regulators to consider “all factors” including current needs, rather than issuing fixed historical permits. The Court suggests how that more flexible system can accommodate the Takings Clause:

…groundwater regulation need not result in takings liability. The Legislature’s general approach to such regulation has been to require that all relevant factors be taken into account. The Legislature can discharge its responsibility under the [Texas Constitution’s] Conservation Amendment without triggering the Takings Clause.

The implicit contrast is with the rigid, backwards-looking system used in the Edwards Aquifer. Indeed, what’s absent from the opinion is any praise, however faint, of that system when it is the current landowners who must bear the burdens of the government’s ongoing regulation of the groundwater in place beneath their feet. Although the Court did not strike down the Act (or yet reach the ultimate merits of these plaintiffs’ claims), this opinion does seem to signal that Texas water law, one way or another, is going to change.