Last month, the Texas Supreme Court issued a controversial opinion in the case of Edwards Aquifer Authority v. Day. The opinion concludes that groundwater underneath a landowner’s property can be owned, just like oil and gas. That conclusion is significant, because it may allow a takings claim against any entity that attempts to regulate the pumping of groundwater on private property.

In the case, Day and others bought over 300 acres of land in 1994 to grow oats and peanuts and for cattle grazing. The land happened to be located above the Edwards Aquifer near San Antonio. The Edwards Aquifer is an underground layer of porous, water-bearing rock that provides water for south central Texas.

In 1993, the year before Day purchased the property, the Texas Legislature enacted the Edwards Aquifer Authority Act, which authorized a new authority to regulate the aquifer. The Act requires the authority to issue a permit for most withdrawals of water from the aquifer.

The previous owners of Day’s property drilled an original well on the land in 1956. The well’s casing collapsed, and its pump was removed prior to 1983. The well continued to flow, however, with some of the water used for irrigation, while the remainder flowed into a lake on the property. In order to continue using the well on the property, or to drill a replacement well, Day needed to obtain a permit from the authority.

To that end, he submitted an application for an “initial regular permit (IRP).” An IRP authorizes the user’s annual maximum withdrawal from the aquifer and is based on past beneficial use of water. Attached to his permit application, Day submitted a statement by the previous landowners that included their irrigation use. After a request from the authority for additional information, as well as a request by Day to amend his application, his application was ultimately denied in November 2000.

Day appealed the authority’s decision to the State Office of Administrative Hearings. An administrative law judge concluded that Day was entitled to very little groundwater because the water used to irrigate the land was from an agricultural sprinkler system that drew water from the lake. (The reasoning was that the lake is “surface water” and thus its use could not support Day’s application for groundwater.) The judge found that the maximum beneficial use of groundwater was for a much smaller area than Day had requested and concluded that the IRP should be granted for only fourteen acre-feet of water. The authority agreed with the decision. Day appealed the decision to district court, claiming that the authority had taken his property without compensation in violation of Article I, Section 17(a), of the Texas Constitution.

The district court concluded that water from the well-fed lake was groundwater, which meant that Day was entitled to an IRP with a higher maximum withdrawal. However, the court granted summary judgment for the authority on Day’s takings claim and remanded the case to the authority for issuance of a new IRP. Both Day and the authority appealed the district court’s decision, and the appeals ultimately went to the Texas Supreme Court.

The Supreme Court very briefly discussed and held that the well-fed lake was, in fact, surface water, and that the authority’s decision on issuing the IRP should be affirmed. The controversial part of the holding, however, related to Day’s takings claim.

Regarding Day’s takings claim, the Court ruled that groundwater can be owned, treating it like oil and gas found beneath the soil: “‘the rule of capture determines title to [natural] gas that drains from property owned by one person onto property owned by another. It says nothing about the ownership of gas that has remained in place.’ The same is true of groundwater.”

The Court tried to ameliorate its holding by affirming the Legislature’s authority to regulate groundwater. It did so by acknowledging its decision in Barshop v. Medina County Underground Water Conservation District, which states that the creation of a regulating entity “is a valid exercise of the police power necessary to safeguard the public safety and welfare.” The Court also added that “[u]nquestionably the State is empowered to regulate groundwater production” and that “[r]egulation is essential to its conservation and use.”

The case was ultimately remanded to the trial court to proceed with Day’s takings claim. Those interested in water will be watching the outcome of the case closely. The ultimate question appears to be whether the courts will apply a “physical takings analysis” or a “regulatory takings analysis.” Essentially, a physical taking automatically entitles a landowner to compensation. In a regulatory taking, the right to compensation – if any – is based on several factors, such as whether the regulation unreasonably burdens the use of the land.

The eventual outcome of the case could later impact cities that, for example, prohibit the drilling of wells in the city limits. TML staff will monitor and report on future developments.

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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