MEMORANDUM. Eve I. Canfield Matthew Machado Madoline Wallace-Gross Chad A. Kupper Blair M. Dickhoner

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1 Richard N. Lyons, II Jeffrey J. Kahn John Wade Gaddis Bradley A. Hall Steven P. Jeffers Anton V. Dworak Adele L. Reester Catherine A. Tallerico Scott E. Holwick Cameron A. Grant MEMORANDUM To: Water Clients From: Jeffrey Kahn, Steven Jeffers, Scott Holwick, Matthew Machado, Madoline Wallace-Gross Re: Senate Bill 13-41, Requirements For Making Conditional Storage Water Rights Absolute Date: July 26, 2013 Eve I. Canfield Matthew Machado Madoline Wallace-Gross Chad A. Kupper Blair M. Dickhoner Attached is Senate Bill 13-41, which was signed into law by the Governor of Colorado on April 8, We thought this new law may be of interest to you. As detailed below, the new law relaxes the requirements for making conditional storage water rights absolute and also removes the legal problems that resulted from carrying water over in storage from year to year. Suzan D. Fritchel Special Counsel Wallace H. Grant Of Counsel Daniel F. Bernard ( ) The new law was adopted in response to the Colorado Supreme Court s opinion in Upper Yampa Water Conservancy District v. Wolfe. In that case, the Supreme Court concluded that even though Upper Yampa Water Conservancy District had stored water, it could not make its conditional storage water rights absolute because the water had not been placed to the decreed beneficial uses. The Supreme Court reasoned that storage of water itself is not a beneficial use. Second, the Supreme Court ruled that the District s use of its senior water rights in storage had to occur before the junior water rights could be used and made absolute. Senate Bill makes the initial act of storing the water a beneficial use, so that water storage rights now can be made absolute before the water is released from storage for the decreed uses. Specifically, Senate Bill amended the definition of beneficial use in Colorado Revised Statutes Section (4) to include storage of water for any purpose for which an appropriation is made. The legislation also added a new Section (4)(e), which allows an appropriator to make a conditional storage water right absolute for all decreed purposes to the extent that a volume of water was stored in priority. This also eliminates the need to return to court to make each use absolute. Senate Bill also removed the requirement that all senior water storage rights had to be used before a junior storage right in the same reservoir could be made absolute. Specifically, the new Section (4)(d) allows conditional water rights in an integrated system to be made absolute without a showing that the senior rights in the system were fully utilized first. Finally, Senate Bill amends Section (5) to prevent abandonment of a conditional water storage right in a change of water right or a diligence proceeding simply because carry-over storage prevents diversion and storage of the fully decreed amounts from year to year. The Legislature determined that the use it or lose it rule should not be strictly applied to water storage rights, because holding water in storage for drought protection and to meet future demand is prudent water management. The new law takes effect on August 7, If you have any questions about this law or how it may relate to your own storage water rights, please contact any of the water lawyers at our firm. 515 Kimbark Street Second Floor P.O. Box 978 Longmont, CO Phone: Fax:

2 NOTE: The governor signed this measure on 4/8/2013. SENATE BILL BY SENATOR(S) Hodge and Roberts, Baumgardner, Brophy, Carroll, Crowder, Giron, Grantham, Jahn, Jones, Kefalas, King, Lambert, Lundberg, Marble, Newell, Nicholson, Schwartz, Todd; also REPRESENTATIVE(S) Fischer and Sonnenberg, Buckner, Coram, Duran, Fields, Ginal, Hamner, Holbert, Hullinghorst, Labuda, Pettersen, Primavera, Rosenthal, Saine, Salazar, Scott, Vigil, Young. CONCERNING THE PROTECTION OF STORED WATER, AND, IN CONNECTION THEREWITH, PRESERVING SUPPLIES FOR DROUGHT AND LONG-TERM NEEDS. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly hereby: (a) Finds that, in order for a water judge to issue an initial decree for a conditional water storage right, the applicant must have proven and the water judge must have found that the underlying appropriation is nonspeculative under law; (b) Declares that this act does not repeal or affect in any way the anti-speculation requirements under law, but the act does change existing Capital letters indicate new material added to existing statutes; dashes through words indicate deletions from existing statutes and such material not part of act.

3 law regarding the requirements to make conditional storage rights absolute; (c) Declares that the purpose of section (4) (e), Colorado Revised Statutes, is to allow a conditional storage right to be made absolute for all decreed purposes once water is stored pursuant to the water right in the subject decreed storage facility, thus avoiding additional diligence proceedings that would otherwise be required after the storage facility is in place and water has been stored; and (d) Determines that: (I) The storage of water in a reservoir under a conditional water storage decree effectuates the beneficial use of the decreed storage right; and (II) Holding water in storage found to be reasonably needed under a water storage decree from year to year for drought protection or to meet demonstrated future demands in accordance with a water storage decree is not speculative hoarding, but rather is part of prudent water management. SECTION 2. In Colorado Revised Statutes, , amend (4) as follows: Definitions. As used in this article, unless the context otherwise requires: (4) "Beneficial use" is MEANS 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. and, Without limiting the generality of the foregoing PREVIOUS SENTENCE, "BENEFICIAL USE" includes: (a) The impoundment of water for FIREFIGHTING OR STORAGE FOR ANY PURPOSE FOR WHICH AN APPROPRIATION IS LAWFULLY MADE, INCLUDING recreational, purposes, including fishery, or wildlife PURPOSES; and also includes (b) The diversion of water by a county, municipality, city and county, water district, water and sanitation district, water conservation district, or water conservancy district for recreational in-channel diversion PAGE 2-SENATE BILL

4 purposes; AND (c) For the benefit and enjoyment of present and future generations, "beneficial use" shall also include the appropriation by the state of Colorado in the manner prescribed by law of such minimum flows between specific points or levels for and on natural streams and lakes as are required to preserve the natural environment to a reasonable degree. SECTION 3. In Colorado Revised Statutes, , amend (5); and add (4) (d) and (4) (e) as follows: Administration and distribution of waters. (4) (d) IN THE CASE OF A PROJECT OR INTEGRATED SYSTEM THAT CONTAINS MORE THAN ONE WATER STORAGE FEATURE, AN APPLICANT NEED NOT DEMONSTRATE THAT ALL EXISTING ABSOLUTE DECREED WATER RIGHTS THAT ARE PART OF THE PROJECT OR INTEGRATED SYSTEM HAVE BEEN UTILIZED TO THEIR FULL EXTENT IN ORDER TO MAKE ABSOLUTE, IN WHOLE OR IN PART, A CONDITIONAL WATER STORAGE RIGHT DECREED FOR A SEPARATE FEATURE OF THE PROJECT OR INTEGRATED SYSTEM. (e) A DECREED CONDITIONAL WATER STORAGE RIGHT SHALL BE MADE ABSOLUTE FOR ALL DECREED PURPOSES TO THE EXTENT OF THE VOLUME OF THE APPROPRIATION THAT HAS BEEN CAPTURED, POSSESSED, AND CONTROLLED AT THE DECREED STORAGE STRUCTURE. (5) In all proceedings for a change of water right and for approval of reasonable diligence with respect to a conditional water right, it is appropriate for the referee and the courts to consider abandonment of all or any part of such water right or conditional water right; except that no conditional underground water right requiring the construction of a well shall be declared abandoned pursuant to this subsection (5) solely upon the ground that the permit issued for the construction of such well by the state engineer pursuant to section (1) has expired. IN ALL SUCH PROCEEDINGS, NO WATER STORAGE RIGHT SHALL BE DECLARED ABANDONED IN WHOLE OR IN PART ON ACCOUNT OF CARRYING WATER OVER IN STORAGE FROM YEAR TO YEAR. SECTION 4. Act subject to petition - effective date - applicability. (1) This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the PAGE 3-SENATE BILL

5 general assembly (August 7, 2013, if adjournment sine die is on May 8, 2013); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. PAGE 4-SENATE BILL

6 (2) This act applies to applications pending on or after the applicable effective date of this act. John P. Morse PRESIDENT OF THE SENATE Mark Ferrandino SPEAKER OF THE HOUSE OF REPRESENTATIVES Cindi L. Markwell SECRETARY OF THE SENATE Marilyn Eddins CHIEF CLERK OF THE HOUSE OF REPRESENTATIVES APPROVED John W. Hickenlooper GOVERNOR OF THE STATE OF COLORADO PAGE 5-SENATE BILL