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 EdwardsAquifer 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.
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Regulatory Takings, Texas Groundwater, and Hydrofracking
by William W. Wade, Ph.D.
Texasmay have created the takings and condemnation lawyer full-employment act.
TheTexas 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 AquiferAuthority v. Day, 274 SW.3d 742, (Tex. Feb. 23,2012, “Day”)) The decision equated groundwater ownershipto oil and gas and concluded that differentiating “between groundwater and oiland gas in their importance to modern life would be difficult.” Ownership of the surface provides ownershipof the water regardless of capture.
Day sets-upa conflict between value of the owner’s groundwater in place and management of thelarger aquifer for public benefit. TexasWater Lawyer, Drew Miller, who represented Edwards in the litigation, reportedthat “[t]he . .. immediate result of the Day decision is that landowners mayassert regulatory takings claims against . . . governmental entities in response to regulation that limits or prohibitsaccess to, or production of, groundwater.” (November 8, 2012.) The Daydecision 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’sthe rub: water is scarce in Texas and about 2/3 of human consumption isgroundwater. Drought is upon the land in2013 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 resideswith the landowner, GCD management of the larger aquifer for the public good runs the risk of a takings claim seekingcompensation.
Suppose you are the GCD for part of an aquifer within a TexasCounty. Assume that the aquifer providesthe municipal water supply for a town of 200,000. For decades, surrounding ranchers have reliedon the aquifer to provide a few hundred acre-feet of water for their livestockand a few homes. Now, assume that thecounty overlies a large shale oil and gas resource and several of the ranchershave 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 hydrofrackingwells for years to come.
The ranchers, the oil company, the GCD and the municipal waterusers are about to find out exactly how much the water is worth and whether theproduced oil and gas or the life-sustaining water is more valuable. Besides working out what might be the termsof exchange between the ranchers and the oil company for the water, I can thinkof a number of engineering, hydrologic, environmental and other economic issuesthat must be sorted out to even consider litigating a regulatory taking case.
If Penn Central werethe governing legal theory, I can imagine a number of empirical hurdles tosurmount to establish severity of economic impact and frustration of distinctinvestment backed expectations. Penn Central’s average reciprocity of advantagemight invoke careful scrutiny of the benefits and burdens at issue. In short, “further proceedings” for the PennCentral test invoke myriad challenges those who follow the arcanenuances of regulatory takings – well-beyond multiplying some water price timesa quantity to claim damages!