iStock_000020175627_SmallDrought in the American Southwest, especially in California, has resulted in significant impacts in the daily lives of people who, until recently, have been able to take for granted the water that comes out of the tap, through the irrigation gate, or down the river. There is another far-reaching impact, however, that is not so readily apparent to your average water user. Dwindling surface water supplies have revealed cracks in the roughly 150 year old bedrock foundation of Western Water Law – the prior appropriation doctrine.

Nearly all western states follow the prior appropriation doctrine, which essentially is a rule of “first in time, first in right.” Under the prior appropriation system, the first user to divert water from a stream and put it to beneficial use obtains a right to continue such diversions with a priority senior to all subsequent diverters. This is a system that has tended to concentrate the ownership of water in historic uses (such as agriculture) at the expense of more recent uses (such as industry and cities). Most states allow these rights to be moved to a different place or type of use (such as industry and cities) through a “sever and transfer” procedure, although this process can be complex and cumbersome.

The impact of how water rights tend to be distributed is being felt in the Southwest. As I noted in my last blog entry, in California the State Water Resources Control Board has taken several steps to reduce water use, including curtailment of water use by some senior right holders in the Bay Delta. While those senior right holders argue that they have valid senior water rights that are supposed to be protected when supplies are short, others argue that conditions warrant that all water users should share in the sacrifices that must be made to survive the drought.

One hundred fifty years ago, the primary concern being addressed by the law of prior-appropriation was ensuring that the first people to stake mining claims would have enough water to mine. See Irwin v. Phillips, 5 Cal. 140 (1855) (discussed here). Today, water from a single river system supports countless competing uses on a much grander scale that could not have been anticipated in the 19th century, including mining, agriculture, industrial, municipal/domestic, and environmental. Completely cutting off lower priority water uses on a river to ensure the full allocation of senior right holders’ deliveries are made at the expense of people downstream who depend on that water source for domestic potable uses can seem unfair at the least, dangerous at the worst. On the other hand, it is also unfair to force senior water right holders to give up water rights that they believed were fully protected under the law when deciding to invest in their use of that water. In both cases, there are also significant economic impacts associated with reduced or eliminated water deliveries that should be considered.

The solution to this problem, however, is probably not to completely scrap the aging prior appropriation doctrine. Rather, the doctrine can be salvaged by improving transferability of water rights. Peter Culp, Partner at Squire Patton Boggs (US) LLP, recently co-authored a comprehensive analysis of investment opportunities in the Colorado Basin and explored potential strategies for adapting the prior appropriation doctrine to the 21st century. Those strategies include water sharing agreements, water banking, leases, exchanges, and others.

For example, on the Colorado River, water users have come together voluntarily to address water scarcity in order to avoid the potential catastrophe that could result from a strict enforcement of the prior appropriation doctrine. Back in January of this year, I wrote about how Colorado River water users have agreed to preemptively share the burden of decreased supplies as a result of drought and climate change.  The Lower Basin states are taking steps to develop (often through conservation) additional water in Lake Mead in order to stave off a shortage on the river that could have serious economic consequences.

There is talk in California about completely overhauling the state’s water laws to change the way the water rights system operates. Similar discussions are beginning to happen in Nevada, as well. In September 2015, water managers and public officials met at a Drought Summit in Carson City to discuss changes to Nevada water law that make water conservation more of a shared responsibility during periods of drought.  John Entsminger, general manager of the Southern Water Nevada Water Authority, was even quoted as saying, “I think ultimately water rights management has to evolve from the strict prior appropriation to more of a paradigm of shared risk.”

Whether water users like it or not, change is not only coming, change is here. Even if drought ends tomorrow, a rigid system of water rights based on prior appropriation that lacks flexibility for allowing right transfers, water sharing agreements and other arrangements is untenable in the modern world where competing demands with high social and economic value conflict over limited water resources. The current shift to sharing risk and cooperative solutions to water scarcity problems is the way of the future. Water users must adjust quickly to this new paradigm or risk being left behind.