William W. Wade, Ph.D., a resource economist with the firm Energy and Water Economics (Columbia, Tennessee) is a frequent author and speaker on the topic of regulatory takings and is familiar to readers of this blog. (His next gig is a talk on Penn Central and inverse condemnation at the 12th Annual Texas Eminent Domain SuperConference February 11-12, 2013, in Austin.)
Bill fills us in on the Texas Supreme Court's decision in Edwards Aquifer Authority v. Day, 274 SW.3d 742, (Tex. 2012). The court issued the opinion in February 2012, but recently denied a motion to rehear the case, thus making it final.
Regulatory Takings, Texas Groundwater, and Hydrofracking
by William W. Wade, Ph.D.
Texas may have created the takings and condemnation lawyer full-employment act.
The Texas Supreme Court in February 2012 reversed a hundred years of water law, changing groundwater ownership rights from a "rule of capture" to ownership of "groundwater in place." (Edwards Aquifer Authority v. Day, 274 SW.3d 742, (Tex. Feb. 23, 2012, "Day")) The decision equated groundwater ownership to oil and gas and concluded that differentiating "between groundwater and oil and gas in their importance to modern life would be difficult." Ownership of the surface provides ownership of the water regardless of capture.
Day sets-up a conflict between value of the owner’s groundwater in place and management of the larger aquifer for public benefit. Texas Water Lawyer, Drew Miller, who represented Edwards in the litigation, reported that “[t]he . . . immediate result of the Day decision is that landowners may assert regulatory takings claims against . . . governmental entities in response to regulation that limits or prohibits access to, or production of, groundwater.” (November 8, 2012.) The Day decision invoked SCOTUS legal theories that might govern compensation--Loretto, Lucas and Penn Central--and remanded Day "to the district court for further proceedings" to sort them out.
Here’s the rub: water is scarce in Texas and about 2/3 of human consumption is groundwater. Drought is upon the land in 2013 and expected to become increasingly recurrent. Groundwater Conservation Districts (GCDs) regulate usage of groundwater within most Texas counties. Now that title to the water in place resides with the landowner, GCD management of the larger aquifer for the public good runs the risk of a takings claim seeking compensation.
Suppose you are the GCD for part of an aquifer within a Texas County. Assume that the aquifer provides the municipal water supply for a town of 200,000. For decades, surrounding ranchers have relied on the aquifer to provide a few hundred acre-feet of water for their livestock and a few homes. Now, assume that the county overlies a large shale oil and gas resource and several of the ranchers have leased their land and water rights to an oil company that plans to produce (an unknown but maybe) thousands of acre-feet of groundwater for hydrofracking wells for years to come.
The ranchers, the oil company, the GCD and the municipal water users are about to find out exactly how much the water is worth and whether the produced oil and gas or the life-sustaining water is more valuable. Besides working out what might be the terms of exchange between the ranchers and the oil company for the water, I can think of a number of engineering, hydrologic, environmental and other economic issues that must be sorted out to even consider litigating a regulatory taking case.
If Penn Central were the governing legal theory, I can imagine a number of empirical hurdles to surmount to establish severity of economic impact and frustration of distinct investment backed expectations. Penn Central’s average reciprocity of advantage might invoke careful scrutiny of the benefits and burdens at issue. In short, "further proceedings" for the Penn Central test invoke myriad challenges those who follow the arcane nuances of regulatory takings – well-beyond multiplying some water price times a quantity to claim damages!