Oregon Court of Appeals Holds Hydroelectric Water Rights Do Not Automatically Convert to Permanent In-Stream Rights When Temporarily Leased for In-Stream Purposes

Schwabe, Williamson & Wyatt PC

Under Oregon Revised Statute (ORS) 543A.305, a “water right associated with [a] hydroelectric project” converts to a permanent in-stream water right “[f]ive years after the use of water under [the] hydroelectric water right ceases.” In WaterWatch v. Oregon Water Resources Department, 304 Or. App. 617 (2020) (hereinafter Warm Springs Hydro after intervenor respondent Warm Springs Hydro LLC), the Oregon Court of Appeals recently held that the use of a hydroelectric water right that had been leased to the Oregon Water Resources Department (OWRD) for in-stream purposes had not “ceased,” and therefore did not convert permanently to an in-stream water right. The decision preserves a tool that holders of hydroelectric water rights have historically used to maintain their water rights at times when the rights cannot be used for power generation.

Warm Springs Hydro involved a water right on Rock Creek, a tributary to the Powder River, held by Warm Springs Hydro LLC to generate power. That water right was historically used to divert water to a power generating facility constructed in 1905, four years before Oregon’s Water Rights Act was enacted. A certificate memorializing the right was issued to the Eastern Oregon Light & Power Company in 1923. Because it could not be operated profitably, the hydroelectric power plant shut down and stopped diverting water in March 1995. In February 2000, just under five years from when water had stopped being diverted for generation of hydroelectric power, the owner of the power plant entered into a lease agreement with the State of Oregon to temporarily lease its hydroelectric water right for use as an in-stream water right. (ORS 537.348(2) allows a water right to be leased for use as an in-stream water right and to retain its original priority date.) The term of the in-stream lease was renewed on multiple occasions, most recently in October 2015 for a period ending on December 31, 2020. WaterWatch petitioned the OWRD order approving the 2015 in-stream lease renewal.

WaterWatch claimed that ORS 543A.305(3)’s requirement that a water right associated with a hydroelectric project be converted to a permanent in-stream water right “five years after the use of water under a hydroelectric water right ceases” precluded OWRD’s renewal of the in-stream lease. WaterWatch argued that only uses of water for hydroelectric power generation qualified as the “use of water under a hydroelectric water right,” meaning that after five years under an in-stream lease, Warm Springs Hydro’s water right must be converted permanently to an in-stream right under ORS 534A.305.

The court held that a “hydroelectric water right” can encompass all water uses associated with a hydroelectric project—it is not limited to only the use of such a right for hydroelectric purposes. The court analyzed the hydroelectric water right statutes in ORS 543A and found that, like water rights for other beneficial uses, hydroelectric water rights can be “amended” at the request of the holder and can be transferred. The court also looked at language in ORS 543A.305 that specifically contemplated uses of water under hydroelectric rights for purposes other than hydroelectric power generation. Accordingly, the court determined that, as used in ORS 543A.305(3), “use under a hydroelectric water right” is not limited to use of water for hydroelectric purposes, but encompasses other beneficial uses authorized by a hydroelectric right, including a lease of that right to in-stream use.

The court also briefly considered WaterWatch’s argument that the five year period in ORS 543A.305(3) begins to run if, at any point in time, the use ceases, regardless of whether use of the right resumes before the five-year period expires. WaterWatch argued that Warm Spring Hydro’s right must be converted to a permanent in-stream right because there were discrete points in time more than five years ago when the right was used neither for hydroelectric nor in-stream purposes. The court quickly dismissed that argument, stating that, as in Oregon’s forfeiture statute (ORS 540.610), the five-year period described in ORS 543A.305(3) resets whenever the use of a water right resumes.

Although the court based its decision solely on principles of statutory construction, the opinion avoids the serious constitutional issues that would have arisen had WaterWatch’s interpretation of ORS 543A.305(3) carried the day. As the court noted, water rights, including hydroelectric water rights, are vested when put to beneficial use and can be transferred to new uses. Under WaterWatch’s interpretation of the law, Warm Spring Hydro’s water right would have been permanently dedicated to a public use, despite the fact that it was a vested right that was actively applied to beneficial use under a series of lease agreements with the State.

Ultimately, the court rejected WaterWatch’s arguments in large part because they urged a construction of ORS 543.305(3) that was not in harmony with the larger context of Oregon’s water laws. The court’s decision fundamentally flows from Oregon’s water right leasing statute, ORS 537.348(2), which explicitly states that during the term of a lease, “the use of the water right as an in-stream water right shall be considered a beneficial use.” Consistent with this principle, the decision affirms the ability of a hydroelectric water right holder to avoid losing its water right by temporarily leasing its right to instream uses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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