Department of Ecology v. Theodoratus , 135 Wash. 2d 582 ( 1998 )

Madsen, J.

The primary issue in this case is whether a final certificate of water right, i.e., a vested water right, may be issued based upon the capacity of a developer’s water delivery system, or whether a vested water right may be obtained only in the amount of water actually put to beneficial use. Here, the Pollution Control Hearings Board concluded that under the circumstances in this case system capacity, or a “pumps and pipes” measure, would be the method of quantification for purposes of the final certificate of water right. Clerk’s Papers (CP) at 20. Accordingly, the Board held that the Department of Ecology could not condition Appellant’s extension of time in which to perfect a water right by providing that actual beneficial use of water would be the measure of that right. We conclude that state statutory and common law does not allow for a final certificate of water right to be issued based upon system capacity. We affirm the superior court’s reversal of the Board’s decision, with some modification.

FACTS

In 1973, Appellant George Theodoratus and Ray Drake formed a limited partnership to build a residential development near the Skagit River in Skagit County, and applied to the Department of Ecology for a water right to serve the development. The application was approved pursuant to a “Report of Examination” issued July 24, 1973. The report included language purporting to create a vested water right which would entitle the applicant to a water certificate issued under RCW 90.03.330 once a water supply system was capable of delivering water, even though some or most of the lots were vacant. Quantification of a water right based upon system capacity, rather than the amount of water used, is referred to as a “pumps and pipes method.” This method has been used by the Department for at least the past 40 years, and hundreds of permits have been issued with pumps and pipes language.

Appellant’s water system will ultimately be responsible for serving Appellant’s development and an additional 30 residential units outside the development under a coordinated water system plan approved by the State Department of Health. Construction of Appellant’s water system began in 1973 with the installation of one well. To date, water lines are available to 93 of the 253 lots platted in the development.

The permit originally granted to Appellant called for completion of the development by 1980. Due to various litigation, the project was delayed several times. A recession in the 1980’s in the area also slowed the project. The Department granted several extensions to Appellant. From 1985 to 1992 the Department file was inactive. In 1992, Appellant requested an extension to 2001, which the Department at first denied. Appellant appealed the denial. The Department then changed its decision and granted an extension to January 1, 2001. The Department placed four conditions on the extension. Numbers 1, 2, and 4 provide (1) that the extension would be the last under Appellant’s groundwater permit; (2) that monthly measurements of groundwater withdrawals and connections would be required, and (4) that any prior inconsistent conditions were superseded. Condition (1) has been withdrawn by Ecology. The third condition basically provides that a vested water right would be determined based upon actual application of water to beneficial use, not on system capacity. There is no question that this third condition reflected a significant change in the basis for issuance of a final certificate of water right. Appellant appealed the new conditions.

The Board struck the conditions which required actual application of water to beneficial use as a measure of the final certificate of water right to be issued. The Board concluded that “[t]he ‘pumps and pipes’ interpretation correctly expresses the application of water to a beneficial use in the context of this case.” CP at 20. The Board held that Appellant may validly appropriate water for all the lots his system is capable of serving and such appropriation would result in a vested water right entitled to a water right certificate.

The Department appealed to superior court. That court reversed, holding that the Department had discretion to condition Appellant’s permit extension by providing that a final certificate of water right would be issued in the amount of water actually put to beneficial use. The court held that beneficial use is not defined by the capacity of the system, that the determination of reasonable beneficial use will he made at the time a fined certificate of water right is at issue, and then a certificate will issue for the instantaneous and annual quantity of water that has been put to actual beneficial use. The court further held, however, that “[reasonable use . . . may include a recognition of variable conditions, including the capacity of a public water system’s completed delivery system to the extent the water will be beneficially used for a normal increase in population within a reasonable period of time.” CP at 399-400.

Appellant appeals the superior court decision, and the Department cross-appeals, contending the superior court’s definition of beneficial use is in error.

ANALYSIS

Proceedings before the Pollution Control Hearings Board are governed by the Administrative Procedure Act, RCW 34.05. When reviewing the Board’s decision, this court sits in the same position as the superior court and applies the standards of review in RCW 34.05.570 directly to the agency record. Tapper v. Employment Sec. Dep’t, 122 Wn.2d 397, 402, 858 P.2d 494 (1993). Where the construction of statutes is concerned, the court engages in de novo review under the error of law standard. City of Pasco v. Public Employment Relations Comm’n, 119 Wn.2d 504, 507, 833 P.2d 381 (1992); RCW 34.05.570(3)(d). As the agency charged with administration of the relevant statutes, Ecology’s interpretation of those statutes is entitled to great weight if they are ambiguous. Pasco Police Officers Ass’n v. City of Pasco, 132 Wn.2d 450, 458, 938 P.2d 827 (1997).

Determination of Water Right

Application of water to “beneficial use” and “perfection” of an appropriative right are terms of art, with well-established meanings in western water law. Water must actually be put to a beneficial use before a water right vests. “The principle that water must be used for a beneficial purpose is a fundamental tenet of the philosophy of water law in the West.” Department of Ecology v. Acquavella, 131 Wn.2d 746, 755, 935 P.2d 595 (1997). “Beneficial use” refers to both the type of use and the measure and limit of the water right. Id.) Department of Ecology v. Grimes, 121 Wn.2d 459, 468, 852 P.2d 1044 (1993); Neubert v. Yakima-Tieton Irrigation Dist., 117 Wn.2d 232, 237, 814 P.2d 199 (1991). In the present case, there is no doubt that water for Appellant’s development is a beneficial use in the first sense, i.e., ah acceptable “type of use” of water. It is the latter sense that is in dispute here. Appellant appears to equate system capacity with beneficial use insofar as the term means the measure and limit of the water right, and the Board agreed. This equation is in error. Relevant statutes, case law, and recent legislative history leave no doubt that quantification of Appellant’s water right for purposes of issuing a final certificate of water right must be based upon actual application of water to beneficial use, not upon system capacity.

Water in Appellant’s system will be drawn from wells, which means that the appropriated water is groundwater. Appropriations of public groundwater are governed by RCW 90.44. Issuance of a final certificate of groundwater right is provided for in RCW 90.44.080. Surface water provisions must also be examined because RCW 90.44.060 provides that statutes concerning surface water appropriations, RCW 90.03.250 through RCW 90.03.340, apply to groundwater appropriations, including issuance of groundwater permits and groundwater right certificates.

Although construction of a water supply system is necessary when appropriating water, the statutes also require actual application of water to beneficial use in order to perfect a water right. RCW 90.03.260 provides that an application for a permit to appropriate water shall include, among other things, the time within which water system construction will be completed “and the time for the complete application of the water to the proposed use.” (Emphasis added.) RCW 90.03.290 provides that a water right permit shall be issued if the Department finds that “there is water available for appropriation for a beneficial use, and the appropriation thereof as proposed in the application will not impair existing rights or be detrimental to the public welfare[.]” If these requirements are satisfied, the Department “shall issue a permit stating the amount of water to which the applicant shall be entitled and the beneficial use or uses to which it may he applied . . . Id.

RCW 90.03.320 provides that when a permit is issued, actual construction work on a project for which the permit has been granted shall commence within a reasonable time as prescribed by the Department, be carried out with diligence, and be “completed within the time prescribed by the department.” In fixing the time for commencement or completion of the work and the “application of the water to the beneficial use prescribed in the permit” the Department is to consider several criteria, including the cost and magnitude of the project and engineering and physical features involved. Id. (Emphasis added.) The Department must consider the public welfare and public interests affected. For good cause shown, the Department may extend the time, allowing such additional time as “may be reasonably necessary, having due regard to the good faith of the applicant and the public interests affected.” Id. A 1997 amendment to the statute provides additional criteria if the water is to be applied to beneficial use for municipal water supply purposes, including financing considerations and requirements of the growth management act, RCW 36.70A, and other planning statutes. Laws of 1997, ch. 445, §3.

RCW 90.03.330 provides that upon a satisfactory showing that “any appropriation has been perfected in accordance with the provisions of this chapter, it shall be the duty of the department” to issue a water right certificate. The applicant’s priority date for a water right will then relate back to the date of application for the permit. RCW 90.03.340; Hillis v. Department of Ecology, 131 Wn.2d 373, 384-85, 932 P.2d 139 (1997).

Read together, the statutes contemplate, in addition to construction of a water system, that an applicant will estimate the time needed to actually apply appropriated water to beneficial use, the Department will establish a time period in which water shall actually be applied to beneficial use, extensions of time will be available depending upon the circumstances, and a final certificate of water right will be issued upon a showing that the appropriation has been perfected. The surface water provisions which require application of water to beneficial use effectuate legislative policy expressly stated in both the surface and groundwater codes. See RCW 90.03.010; 90.44.020; 90.44.040.

Case law is in accord with the statutory requirement that a water right must be based on actual application of water to beneficial use and not upon system capacity. “An appropriated water right is established and maintained by the purposeful application of a given quantity of water to a beneficial use upon the land.” Grimes, 121 Wn.2d at 468 (emphasis added) (quoting Neubert, 117 Wn.2d at 237). Perfection of an appropriative right requires that appropriation is complete only when the water is actually applied to a beneficial use. See, e.g., Ellis v. Pomeroy Improvement Co., 1 Wash. 572, 21 P. 27 (1889); United States v. Alpine Land & Reservoir Co., 983 F.2d 1487, 1492-93 (9th Cir. 1992) (Nevada law; perfection of water right requires water be put to actual beneficial use); see generally Arval A. Morris, Washington Water Rights—A Sketch, 31 Wash. L. Rev. 243, 252, 258-59 (1956); 2 Waters and Water Rights § 14.03(d) (Robert E. Beck ed., 1991).

In requiring actual application of water to beneficial use in order to perfect an appropriative right before a final certificate of water right may be issued, the statutes codify fundamental western water law.

Appellant argues, however, that RCW 90.44.080 requires only completion of construction in accordance with the pumps and pipes language in his original permit. RCW 90.44.080 states that “[u]pon a showing to the department that construction has been completed in compliance with the terms of any permit issued under the provisions of this chapter, it shall be the duty of the department to issue to the permitee a certificate of groundwater right stating that the appropriation has been perfected under such permit.” RCW 90.44.080. The statute requires (1) completion of construction of the water system (2) in compliance with the terms of permit and (3) perfection of the appropriative right. The flaw in Appellant’s argument is that the terms of the permit must be consistent with the requirements of the surface water code specifically made applicable under the groundwater code. Clearly, permit terms which are unlawful under the surface water code cannot be used to force issuance of a final certificate of groundwater right under RCW 90.44.080. Because both compliance with a permit (containing terms lawful under the statutes) and perfection of the appropriation are required under RCW 90.44.080, we reject Appellant’s contention that all the statute requires is completion of construction. In other words, while construction must be complete, it must be under terms which are consistent with the surface water code provisions specifically mentioned in the groundwater code, and perfection of the appropriative right must occur.

Neither the statutes nor the case law supports use of system capacity as a basis for determining a water right. Indeed, we recently held that system capacity as a basis for determining a water right is inconsistent with the beneficial use requirements, and beneficial use must be calculated based upon diversion and actual use under this state’s law. Acquavella, 131 Wn.2d at 756.

Appellant attempts to distinguish Acquavella, arguing that Acquavella defines beneficial use based on the needs of irrigation systems and that its definition does not control where public water systems are concerned. This court has not drawn the distinction between what constitutes beneficial use for water for irrigation and water for other purposes which Appellant urges, and we will not do so here. A vested water right is perpetual, operating to the exclusion of subsequent claimants. Grimes, 121 Wn.2d at 467. The requirement of beneficial use of water addresses concerns about the availability of water resources given ever increasing demands. Id. at 468. Competing need for water exists whether vested water rights are held by irrigators or public water systems.

Nor do the statutes draw the distinction which Appellant urges. The statutes address appropriation of water for irrigation purposes in the same way as they address appropriation for other proposed uses. E.g., RCW 90.03.260; 90.03.320. Therefore, “beneficial use” and “perfection” have the same meaning regardless whether a private residential development or an irrigation use is involved.

We are also not persuaded by Appellant’s claim that a distinction is warranted because his is a public water supply system. Initially, we note that Appellant is a private developer and his development is finite. Appellant is not a municipality, and we decline to address issues concerning municipal water suppliers in the context of this case. We do note that the statutory scheme allows for differences between municipal and other water use. E.g., RCW 90.03.260; 90.14.140(2)(d). We also note that 1997 legislation which would have allowed for a system capacity measure of a water right “[f]or those public water supplies that fulfill municipal water supply purposes,” Substitute Senate Bill 5783, 55th Leg., Reg. Sess. § 4(2) (1997), was vetoed by the Governor on the ground that the provision, along with another vetoed section, would have provided an unfair advantage to public water systems by creating great uncertainty in determining water availability for other water rights and new applicants, as well as uncertainty in the protection of instream resources, and would have increased the difficulty of managing the state’s waters. In determining legislative intent of a statute, the reviewing court considers the intent of the Governor when he vetoes a section. State ex rel. Royal v. Board of Yakima County Comm’rs, 123 Wn.2d 451, 462, 869 P.2d 56 (1994); In re Marriage of Maples, 78 Wn. App. 696, 702, 899 P.2d 1 (1995). Flainly, the Governor’s veto message is strong evidence of intent that system capacity is not the measure of a water right under current statutes.

Finally, there is another reason to reject Appellant’s contention that system capacity determines the measure and limit of a water right. Water rights may be relinquished. RCW 90.14.130-.180. The failure “to beneficially use all or any part” of the right for five years, without sufficient cause, “shall relinquish” the right in whole or in part. RCW 90.14.160; 90.14.170; 90.14.180. If system capacity defined the quantity of the right, i.e., system capacity equated to beneficial use as a measure and limit of the right, these statutory provisions would be meaningless. For example, if only one lot of 250 in a development having a completed water supply system ever actually used water, relinquishment could never be found of any part of the water right because system capacity would not change no matter how long water was not actually used with respect to the other 249 lots. We will not construe the statutory scheme in a way which renders these provisions of the relinquishment statutes meaningless. See Whatcom County v. City of Bellingham, 128 Wn.2d 537, 546, 909 P.2d 1303 (1996).

Additional concerns presented by Appellant’s position are that using system capacity as a measure of a water right would allow speculation in water rights and lead to uncertainty in management of this fixed resource at a time when availability of water is a significant concern and management of limited water resources is of utmost importance.

We are mindful of the concerns expressed by Appellant and amici curiae that developers will find financing for water systems impossible to acquire if system capacity is not used to determine a vested water right, and this will have an adverse effect on development and availability of affordable housing. Nevertheless, under the current statutes and this court’s recent water law decisions actual beneficial use must occur before a water right certificate may be issued. No authority is cited to us for the proposition that financial risks and ability to obtain financing justify redefining beneficial use. Whether financing concerns should be taken into account in determining beneficial use is a matter for the Legislature.

We do note that Appellant has been granted an extension of time in which to perfect his water right. He has at present an inchoate right to water which has not yet been applied to a beneficial use. An inchoate right is

an incomplete appropriative right in good standing. It comes into being as the first step provided by law for acquiring an appropriative right is taken. It remains in good standing so long as the requirements of law are being fulfilled. And it matures into an appropriative right on completion of the last step provided by law.

1 Wells A. Hutchins, Water Rights Laws in the Nineteen Western States 226 (1971). Inchoate rights are recognized under the water code. RCW 90.03.460 provides:

Nothing in this chapter contained shall operate to effect an impairment of any inchoate right to divert and use water while the application of the water in question to a beneficial use is being prosecuted with reasonable diligence, having due regard to the circumstances surrounding the enterprise, including the magnitude of the project for putting the water to a beneficial use and the market for the resulting water right for irrigation or power or other beneficial use, in the locality in question.

There is no issue at this point about whether Appellant has acted with reasonable diligence. If, in the future, Appellant decides to seek another extension of time, the Department will then be required to apply the appropriate statutory standards when deciding whether an extension should be granted, keeping in mind, of course, the statutory requirement that a reasonable time be allowed in which to actually apply water to beneficial use. See RCW 90.03.320.

The foregoing discussion resolves the Department’s cross-appeal. Nevertheless, we must comment on the superior court’s erroneous expansion of the definition of beneficial use. That court indicated in one of its conclusions of law that beneficial use as a measure and limit of a water right may be defined in part, but not in whole, by the capacity of a public water system’s completed delivery system, to the extent the water will be beneficially used for a normal increase in population within a reasonable time. Contrary to the court’s conclusion, vested water right for Appellant’s development will depend upon the actual application of water to beneficial use, and a final certificate of water right cannot be issued to Appellant for a quantity of water not actually put to beneficial use.

Next, we turn to the Department’s claim that regardless of what was provided in the original permit and Report of Examination, it has discretion to condition an extension of that permit to say that a water right certificate will ultimately be issued only to the extent water has actually been put to beneficial use, thus eliminating system capacity as a measure of the right. The Department’s argument has merit. The decision to issue a permit is a discretionary act. Schuh v. Department of Ecology, 100 Wn.2d 180, 186, 667 P.2d 64 (1983). Upon a showing of good cause, the time fixed for completion of a project for which a water permit has been granted shall be extended. RCW 90.03.320. Generally, an agency which has authority to issue or deny permits has authority to condition them. E.g., State v. Crown Zellerbach Corp., 92 Wn.2d 894, 899, 602 P.2d 1172 (1979). The conditions of the original permit do not necessarily create a vested right to proceed under those conditions where renewal is discretionary if, for example, the law changes in the interim or the renewal decision involves consideration of information not considered when granting the original permit. Eastlake Community Council v. Roanoke Assoc., Inc., 82 Wn.2d 475, 491-93, 513 P.2d 36, 76 A.L.R.3d 360 (1973) (involving issue of vested rights in building permit).

When the Department determines whether to extend the period of time for completion of a project under RCW 90.03.320, it must consider the “good faith” of the appropriator and the public interests. The Department thus has authority to condition any extension to satisfy any public interest concerns which arise, provided, of course, that it also must comply with all relevant statutes. See Hardy v. Higginson, 123 Idaho 485, 849 P.2d 946 (1993) (inchoate right of water permittee to put water to beneficial use does not entitle permittee to vested right under original permit when application is made to amend the permit; the entire permit is subject to scrutiny under public interest considerations added to statutes after original permit issued). Here, the original permit would have required that a vested right be granted on a basis which is unlawful. The Department must be able to condition any extension to correct an unlawful permit. Cf. Acquavella, 131 Wn.2d at 756-57 (reasoning that consent decree allocation of water based upon a settlement agreement between parties could not be used to avoid statutory requirements and create a right to water on any basis other than actual beneficial use). The Department validly conditioned Appellant’s permit extension.

Appellant argues that the Department’s change from a system capacity measure of a water right is arbitrary and capricious. Agency action is arbitrary and capricious where it is willful and unreasoning and taken without regard to the facts and circumstances. Hillis, 131 Wn.2d at 383. If there is room for two opinions, a court will not find arbitrary and capricious action even if the reviewing court believes the agency’s decision wrong. Id. As counsel for Appellant conceded at oral argument, if the Department’s action in abandoning a system capacity method of quantifying the water right was because using that method was ultra vires and unlawful, then it did not act arbitrarily and capriciously. We agree, and because we have determined that the Department acted ultra vires in utilizing an unlawful system capacity measure of a water right, we conclude the Department did not act arbitrarily and capriciously in switching to an actual application of water to beneficial use standard.¹

Appellant next says that just as he could not collaterally attack the original Report of Examination containing the “pumps and pipes” language because he did not appeal it, the Department should be barred attacking it in this proceeding. The issue in this case concerns the condition which the Department imposed when granting the extension of time to Appellant. This issue has not previously been heard and determined. See Peterson v. Department of Ecology, 92 Wn.2d 306, 312, 596 P.2d 285 (1979). Accordingly, the Department is not collaterally estopped from conditioning extension of Appellant’s permit to provide that a water right certificate will be based upon actual application of water to beneficial use.

Appellant contends that equitable estoppel requires the Department to continue using a system capacity measure of his water right. To establish equitable estoppel requires proof of (1) an admission, statement or act inconsistent with a claim, later asserted; (2) reasonable reliance on that admission, statement, or act by the other party; and (3) injury to the relying party if the court permits the first party to contradict or repudiate the admission, statement or act. Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 831, 881 P.2d 986 (1994). Equitable estoppel against the government is not favored. Kramarevcky v. Department of Soc. & Health Servs., 122 Wn.2d 738, 743, 863 P.2d 535 (1993). Therefore, when the doctrine is asserted against the government, equitable estoppel must be necessary to prevent a manifest injustice, and the exercise of government functions must not be impaired as a result of estoppel. Id. Each element must be proved by clear, cogent, and convincing evidence. Id. at 744.

Although there are several responses to Appellant’s argument, we rest our decision upon the principle that where the representations allegedly relied upon are matters of law, rather than fact, equitable estoppel will not be applied. See Concerned Land Owners of Union Hill v. King County, 64 Wn. App. 768, 778, 827 P.2d 1017 (1992) (citing Chemical Bank v. Washington Pub. Power Supply Sys., 102 Wn.2d 874, 905, 691 P.2d 524 (1984)). Whether the Department can issue Appellant a water right certificate on any basis other than actual beneficial use is an issue of law. Insofar as the Report of Examination stated a system capacity measure of a water right, it was a statement of law which was incorrect. Equitable estoppel does not require adherence to a systems capacity standard in this case.

Finally, Amicus Curiae Washington Association of Realtors and Building Industry Association of Washington and Amicus Curiae Washington Water Utilities Council contend that the Department failed to comply with the Administrative Frocedure Act, RCW 34.05, because it did not engage in rule making when it changed its “policy” of issuing water right certificates based upon a systems capacity measure to issuing certificates only for the amount of water actually applied to beneficial use. As discussed above, under this state’s water code and this court’s decisions, a water right certificate may be issued only for the amount of water actually put to beneficial use. The condition which Appellant challenges reflects the statutory and decisional law. It is not an issue of agency “policy.” Administrative rules or regulations cannot amend or change legislative enactments. Pannell v. Thompson, 91 Wn.2d 591, 601, 589 P.2d 1235 (1979). Rule making is not required.

We affirm the superior court decision, as modified.

Durham, C.J., and Dolliver, Smith, Guy, Alexander, and Talmadge, JJ., concur.

1 Appellant claims that he has been singled out for unfair treatment. In acting to correct its previously unlawful method of determining the measure and extent of a vested water right, the Department necessarily had to begin somewhere. Since Appellant requested an extension of time, it is not unreasonable for the Department to impose conditions on the extension which were necessary to bring the permit into compliance with the law.