Leasing water rights for instream flow uses: a survey of water transfer policy, practices, and problems in the Pacific Northwest.

I. INTRODUCTION

A. Purpose

Water in streams, rivers, and lakes has social, economic, and environmental values that grow increasingly important as water grows more scarce. Local quality of life, cultural and historical assets, tourism dollars, real estate values, commercial ventures, water quality, species diversity and vitality, recreation, and religious values all depend on flowing rivers and healthy lakes. The declining health of the Pacific Northwest's hydrologic resources is this region's "rain forest" crisis. Many important systems have already been irretrievably lost or badly weakened; subjugating riparian ecosystems to narrow, marginally economic uses at the expense of the larger system's health is the region's equivalent of "slash and burn." The situation is improving because of a massive influx of money and resources aimed at salmon recovery, but leasing, and the power of the marketplace, can fill important gaps in underfunded, understaffed, and slow moving programs. This Article focuses on leasing water for instream-flow enhancement in dewatered basins and stream reaches.

This Article discusses the pros and cons of leasing water rights as a strategy to improve instream flow and to identify procedures, problems, and opportunities for improvement in water right leasing.

B. Scope and Definitions

Idaho, Montana, Oregon, and Washington are the states that define the area referred to in this Article as the Pacific Northwest. Surface water rights are of primary interest as sources of leasable water, but the Article briefly discusses ground water, water in storage behind dams, and interbasin transfers because they are often components of a lease arrangement.

Instream flow, for the purposes of this Article, means any nondiversionary, in-place use of water with little or no resulting consumptive use. Although the first century of prior appropriation doctrine rarely recognized any nondiversionary uses except milling and power generation as legitimate and beneficial,(1) many western states have relaxed their strict diversion requirement for water rights appropriation.(2) Most western states now recognize fish, wildlife, and recreation as beneficial uses under state law; some further recognize aesthetics and pollution abatement as beneficial uses.(3)

For the purposes of this Article, a lease is any temporary transfer, for consideration, of actual water to instream flow. The possible permutations of transfer arrangements are limited only by the parties' imaginations. Water leasing includes private contracts, withdrawals from regional or state water "banks,"(4) and other arrangements with private, state, tribal, and federal water managers.

Leasing implies that there is a real property res that changes hands for a term. In this respect, leasing may be an imperfect label for these transactions. Water, ultimately subject to the vagaries of the weather, is not a solid, unchanging, reliable, measurable entity like a piece of land. State property law defines water rights much differently than rights in land.(5) Water rights are usufructuary, allowing the holder to derive benefits from water that actually belongs to all people of the state; these are limited rights, as the user cannot destroy, waste, or injure the water resource.(6) To lease rights for instream flow is, in effect, to contract with a user to ensure that the right will remain unexercised. Measurement, regulation, and enforcement of the right are very important matters during negotiation and over the life of an instream flow lease.(7) Even with the uncertainty latent in water supply, lease arrangements in the Pacific Northwest have managed to put water where it is desperately needed.(8)

Parties with the resources to affect a lease include private individuals, organizations, and public entities. In the Pacific Northwest, the general rule is that only a state agency may acquire and hold instream flow rights.(9) Only Washington has allowed permanent private ownership of in-place water rights.(10) On the mainstem of the Columbia and Snake Rivers, the federal government precludes significant participation by others; the government leases, purchases, and otherwise manipulates the hydrograph of these rivers to meet statutory obligations to fisheries, irrigators, barge traffic, and hydropower.(11) Nevertheless, there is a significant role for individuals and organizations to play in leasing water for instream flow on important tributaries.(12) This Article deals briefly with leasing to and from federal agencies but the emphasis is on leases in the tributaries, where even small temporary changes in water use can benefit fisheries, recreation, and other instream uses.

Part II explores the sources of water that could be leased for instream flow enhancement. Part III gives an overview of state, and to a lesser degree, tribal and federal agency law and practice, both in a short narrative and by a set of matrices that outline the important aspects of each state's law. Part IV discusses formation and negotiation of a lease, including valuation, with an appendix of lease types and provisions. The Article concludes with a summary of observations and recommendations for change.

II. SOURCES OF WATER

A. Location and Type

To improve conditions in a dewatered stream reach or lake, the first inquiry must be where the water will come from. To satisfy an instream lessee's purposes, water must have the right combination of quality, quantity, and priority, with a strategically located place of use, available at the correct time with the correct hydrographic "shape."(13) Water with the necessary characteristics can come from federal, private, or tribal rights, ground water, another watershed, or even unappropriated surplus.

As a general rule, off-stream consumptive uses are the most effective sources for instream flow leasing because they remove water from the system (diversion) and make a part of it unavailable for instream uses (due to evapo-transpiration, evaporation, percolation, or pollution). To lease these rights is to reverse their fundamental interference with instream flow.

Water in storage behind dams is an effective source because of its position on the stream and human control over releases. Releases from storage can influence the hydrograph of a river (the changes in its flow pattern over time) to mimic or improve natural conditions. The amount of water is often not as important as the timing of flow over a day, a season, or a year. Storage water can influence the temperature and chemical makeup of water in a stream reach, which are also important parameters for instream flow uses.

A conceptually similar but less certain strategy is to lease storage space instead of stored water. Not all space behind a dam is consistently used or full of water. Dams often have capacity that is temporary or deemed unreliable, such as sediment storage or space allocated for buffering floods. These short-term or temporary spaces may provide a source of water for augmenting instream flow. These spaces may also provide a place to accumulate and regulate water rights leased in other areas of the watershed for later instream use.

Ground water is a large resource with leasing potential. But problems arise because there are few strategically located productive wells, power costs are high, and prolonged pumping often interferes with the very reach of a river that a lease seeks to augment. However, for nontributary or "weakly" tributary aquifers, ground water leases could augment flows, especially in the short-term. Ground water could be an important element in an exchange situation, with instream flow lessees offering ground water to replace water diverted from surface sources. All four Northwest states treat ground water as appropriable and part of the greater hydrologic system,(14) although conjunctive management of the two regimes in the region is in its infancy.(15)

To move water from another watershed into a stream reach is logistically and financially difficult. State water managers closely scrutinize interbasin transfers because the benefits and costs are unevenly distributed.(16) The trend in western states is to enact "area of origin" protection legislation to compensate source areas and ensure that transfers do not unduly harm the rural environment, culture, or economy.(17) More often these sources will be elements in a multi-party exchange of water rights.

Unappropriated water, a vanishing commodity throughout the Northwest, is a possible, though very speculative, source of instream flow. Water not committed to water rights presumably already delivers instream benefits. Leases or other contractual arrangements with the state could ensure that this water stays in place. Montana, Oregon, and Washington allow municipalities and others to reserve water for future supply.(18) Such water might be leased over the near-term to improve or maintain flow conditions. States also close some river reaches to appropriation, either through legislative action or administrative decision making.(19) Leasing this water could become a means of generating revenue for state instream flow programs in other watersheds. All of these arrangements depend on water that is not appropriated or appropriable in the usual sense.

B. Water Right Holders

Federal agencies control the maJority of the surface water in the Northwest, both by water rights20 and diversion works. The federal presence is most notable on the mainstem of the Columbia and Snake Rivers, although there are many federal projects on important tributaries. These multiple-use projects of the U.S. Bureau of Reclamation (BOR) and U.S. Army Corps of Engineers (Corps) contribute hydropower, irrigation water, flood control, navigation flows, recreation, and fish and wildlife habitat.

Although, historically, federal government projects emphasized power generation and irrigation, the 1980 Northwest Power Act(21) attempted to realign the priorities of the Columbia River Federal Power System to improve conditions for anadromous fisheries. The implementing agency, the Northwest Power Planning Council (NPPC) has worked for several years to restore fisheries. NPPC, spurred by the listing of three salmon runs pursuant to the Endangered Species Act (ESA)(22) and the Northwest Power Act's demand for balancing power and fish,(23) has increased its efforts to augment instream flow on the larger rivers of the Columbia Basin.(24) NPPC attempts to restore declining salmon runs through the Columbia River Basin Fish and Wildlife Program.(25) Although many believe that the federal efforts are too little too late,(26) leasing water to improve conditions on the larger rivers is probably beyond the financial ability of anyone but the federal government. However, there are opportunities for federally funded flow enhancement in smaller tributaries that are essential for fish spawning and rearing and offer excellent recreational, water supply, and aesthetic values.

Bonneville Power Administration (BPA), the quasi-federal agency set up to market power from the federal hydropower projects in the Columbia Basin, must conform to NPPC's fish recovery plans.(27) Though they are not strictly a source of water, BPA is a major source of funding for fish recovery and instream flow, with de facto control of the federal mainstem dams and the ability to shape the hydrograph of the Columbia, at least below Brownlee Dam in Idaho.(28) BPA is the lessee of the greatest amount of water for instream flow in the Columbia Basin.(29)

Leasing "federal" water usually translates to leasing water rights either from BOR contract holders(30) or from uncontracted storage behind BOR dams. In either case, BOR is a necessary party in the negotiations. Irrigation districts, which are the direct recipients and managers of BOR water, usually have their own rules and criteria for transfers.(31) Traditionally, project irrigation districts have had broad discretion to move water between agricultural users within a given project.(32) Where there is uncontracted or temporary storage, BOR has primary authority and could negotiate leases for instream uses much as it does for traditional uses.(33) Uses beyond project boundaries, where allowed, would need state approval.(34)

The Corps also operates dams in the Northwest. The Corps's primary mission is navigation, though the agency also manages for flood control and power generation. Leasing opportunities may be limited for water, but the Corps, like BOR, has a considerable amount of storage space and the ability to manipulate the hydrograph of many rivers. Nonirrigation water that the Corps controls does not have a state water right, which could put Corps water beyond the ambit of state water agency oversight. In some cases, Corps irrigation water and storage is managed and leased by BOR.(35) The Corps does have the power to negotiate five-year contracts for unallocated storage, but, like BOR, the authorizing legislation for most projects limits uses and lessees.(36)

Other federal agencies hold water rights, but generally these are small, scattered, or already dedicated to instream or environmental purposes. The U.S. Forest Service, U.S. Fish and Wildlife Service, National Park Service, U.S. Department of Energy, Bureau of Land Management and others have state water rights for domestic use, stockwatering, fish and wildlife uses, and limited commercial and irrigation uses.

Pacific Northwest state agencies may have water available for lease. State land departments may have lands that are under irrigation or have commercial water uses. The state would be a necessary party in any transfer or lease transaction, but negotiations would likely proceed with the state lessee in a manner similar to those with a private land or water right owner.

Privately held rights on smaller tributaries offer a direct and effective source of water to enhance instream flow because they are strategically situated and offer few competition and enforcement problems. Private water rights are the ones most likely to be found on dewatered or fully appropriated tributaries to the major rivers of the Columbia Basin. In small tributaries, a little water instream can do a lot of good. A water lease market, if one is to develop, will depend heavily on water rights held by individuals, irrigation districts, and corporations. State governments have extensive oversight of these transfers and leases.(37)

Privately owned water rights range from those adjudicated or formalized by state processes--absolute rights--to the less formal and reliable rights backed by permit or notices of appropriation--conditional rights. Oregon now allows transfers of conditional rights.(38) Washington allows parties to transfer the portion of the right that has been demonstrably applied to a beneficial use.(39) Idaho accepts permit-based rights into its water supply bank.(40) States might be reluctant to allow leases or other transfers of conditional, "unperfected" water rights, wary that perfection by lease will lead to speculation in water and frustrate other beneficial uses. Conditional rights could be a good source of low-cost leasable water,(41) and their application to instream flow could provide the short-term flow enhancement that many watersheds need. Allowing instream use to count toward perfection would provide water developers with legal and monetary incentives to enter lease arrangements.

Tribal water rights are another promising water source. Native American tribes and bands are a unique group of water users. Sovereign governments more independent than states, they have a unique trust relationship with the federal government. All federal officials and Congress are bound by a high degree of duty to Native Americans.(42) The Department of the Interior (DOI) is the trustee for tribes, and, as a general rule, the Secretary of the Interior and Congress must approve any permanent transfers of tribal land or interests in land.(43) Leasing water, however, may not require congressional approval, although the Secretary of the Interior, as trustee, may be an essential party.(44) State law likely applies to a transfer of water for use outside the reservation.(45)

Tribes have various types of water that may be available to lease. Tribal consumptive use rights for agriculture or industry often have a state water law 'pedigree" and would transfer much the same as private rights.(46) Instream leases could be based on fallowing agriculture, temporary cessation of commercial use, or unallocated storage. Domestic, stockwatering, and municipal use rights in Indian country, as in the states, are too essential and not sufficiently large to be the subject of a lease. Tribes in the Pacific Northwest also have treaty-based hunting and fishing rights on- and off-reservation. It is the position of the Tribes and DOI that these uses have reserved water rights.(47) This water would seldom be available for transfer, because it is already in place protecting instream values.

Tribes also have water that is reserved for future use as demand grows on reservations. So-called Winters(48) rights were implicitly reserved at the creation of the reservation to facilitate the tribe's development of a permanent homeland. Winters rights are unusual because they are based on future use but carry very early priority dates. Tribes, however, have had difficulty actually using their Winters rights. On the Wind River Reservation in Wyoming, the tribes attempted to apply their Winters water to an instream fishery enhancement project.(49) The Wyoming State Engineer refused to restrict upstream junior appropriators to satisfy the senior right.(50) The Wyoming Supreme Court held that unused future project water could not be dedicated to an on-reservation instream flow.(51) Apparently, the tribes would have to perfect their Winters rights through out-of-stream diversionary uses before they could attempt to convert them to instream flow.(52)

The Wind River cases portend the likely struggle over leasing Winters rights. Established junior rights fear the rapid expansion of these senior but unused rights because it would destabilize their water supply. A diversion/perfection requirement--that is, application of water to some conventional use such as agriculture--slows the growth of Winters water use to a pace dictated by tribal investment, which is the same limitation that non-Indians faced when perfecting their rights. Leasing Winters rights would remove any financial restraints on their use and could generate significant cash flow for the tribes. Tribes could use this money to finance physical improvements for water projects that would enable permanent use of Winters water rights--as well as permanent reductions in some junior rights. In addition, leasing instream might have the effect of moving water downstream to other junior appropriators, who benefit by virtue of their geographic location. Finally, non-Indian water users are loath to pay for water that they have used free for years. Only a few Winters rights have been finally adjudicated in the four states of this study,(53) making a tribal lease even more difficult and speculative.

Water allocated to the tribes from Indian water right settlements is often available for leasing. For example, recent settlements of Indian water claims in Arizona explicitly enable tribes to lease their water to neighboring cities.(54) Similar provisions appear in settlements negotiated in the Pacific Northwest.55 Settlements usually allow Tribes to lease storage water or water already used off-reservation.(56) Settlements often limit water currently unused and reserved for future uses to on-reservation use.(57) Tribes tend to be wary of off-reservation transfers because of their concern that they may lose control of the resource.(58)

Water for instream flow augmentation can come from a variety of physical sources. Generally, local surface water is the best source for leasing because there are no transmission costs and the water has a desirable profile of physical and chemical qualities. Water in storage has the added advantage of being easily shaped for the purposes of the lease. Potential lessors are a large and varied group, each with unique values and concerns. Federal and tribal projects control vast amounts of water, but the most promising source for instream flow improvements may be the smaller appropriators on secondary and smaller tributaries.

III. LAWS AND AGENCY REGULATIONS FOR LEASING INSTREAM FLOW

A. State Control of Instream Leasing

Legal constraints on water leasing are a threshold issue. If state, tribal, or federal law will not allow a potential water lessee to change beneficial use or the place of use, a lease arrangement is unlikely. None of the Pacific Northwest states have statutory prohibitions against leasing water rights. In fact, western states generally characterize water rights as real property,(59) which owners can lease, sell, trade, or bequeath. All four states have programs to facilitate the leasing of water rights. However, private arrangements outside of the state leasing or banking schemes are possible.(60)

The Pacific Northwest states have a policy of maximum beneficial use of water within the state(61) even though the Columbia, Snake, and many smaller rivers are interstate resources. In the 1970s and 1980s, booming energy development threatened massive exports of states' water via coal slurry pipelines and interbasin projects.(62) At about the same time, the U.S. Supreme Court declared water to be an item of interstate commerce in Sporhase v. Nebraska ex rel. Douglas.(63) Many western states reacted to these developments with aggressive programs to control their water resources and keep water within state boundaries.(64) To avoid interfering with the Commerce Clause(65) and to assert maximum control over interstate transfers of water, states often choose to become "market participants,"(66) actively engaging in banking, leasing, and trading of water rights.

Idaho has been a leader in water transfers with strong state participation through a water supply bank created in 1979.(67) The Idaho Water Resources Board (Board) operates the bank, adopts rules and regulations,(68) and acts as an intermediary to facilitate water transfers.(69) The Board obtains decreed, licensed, or permitted water rights(70) and pools them for leasing.(71) The Director of the Idaho Department of Water Resources approves, conditions, or rejects lease applications according to criteria outlined in the statute.(72) Temporary rules enacted to aid Snake River salmon migration streamlined rentals for instream flow and gave the power of approval to local committees and the Board, although the rules became ineffective on January 1, 1996.(73)

Montana has also embraced the market participant theory.(74) It is no longer possible to appropriate more than four thousand acre feet (4 Kaf) or 5.5 cubic feet per second (cfs)(75) of water in Montana for any use; instead, the state appropriates the water and leases it for fifty-year intervals.(76) Lesser amounts may be appropriated in the traditional manner or leased.(77) Montana has a Water Leasing Trust Fund for instream flow augmentation.(78) The Trust Fund accepts contributions of water rights and money to augment its state-supported instream flow leasing program.(79) Montana's Department of Fish, Wildlife, and Parks (DFWP) is the only authorized lessee for instream flow under the Trust Fund program.(80) Montana's Board of Natural Resources and Conservation may name a maximum of twenty stream reaches that are eligible for the program.(81) The Department of Natural Resources and Conservation (DNRC) then treats the lease as any other transfer of water rights and ultimately approves or denies it according to criteria laid out in the transfer statute.(82)

Montana's 1995 legislature passed legislation that authorizes "the temporary use of existing water rights for instream flow to benefit the fishery resource."(83) Individuals, associations, partnerships, and corporations may now lease water rights.(84) The bill adds sections to Montana's transfer statutes, most notably requiring the lessee to prove by a preponderance of the evidence that the instream flow transfer will benefit fish(85) and not injure other appropriators.(86) Lessees must also provide publication notice to other water users thirty days before submitting the application to DNRC.(87) The temporary leasing statute sunsets June 30, 2005, and all leases executed under its provisions may neither be renewed nor extended beyond that date.(88)

Washington has a Trust Water Rights program that relies on leases, gifts, bequests, purchases, and "net water savings" from conservation efforts to generate a pool of water for many beneficial uses.(89) Washington's Department of Ecology (Ecology) administers the trust program and applies the water it acquires to solve problems in water resource inventory areas of the state.(90) There is a separate trust water rights program for the Yakima Basin.(91) The trust program is a test mechanism for Washington to explore the concept of voluntary transfers.(92) The statute anticipates that trust water will come from state-funded conservation programs and waives the usual notice requirements.(93) Although the program has leased no water to date, many parties are interested in providing and receiving water.(94) Anyone can participate in the Washington trust program as a lessee or lessor, but Ecology holds and administers the instream right.(95)

Oregon has chosen a passive role as an intermediary, but still exerts strong control over the leasing process.(96) A lease of water rights must comply with transfer statute requirements(97) unless the lease agreement is for two years or less.(98) By an aberration of drafting, or perhaps purposefully, Oregon statutes appear to allow leases of water rights for instream flow without loss of priority date or the usual transfer inquiry.(99) In response, Oregon promulgated rules with a modified transfer inquiry to create a quick and inexpensive leasing process that is still under state control.(100)

B. Private Arrangements for Instream Flow

Ownership and control of leased instream rights is an unsettled legal issue in all Northwest states except Montana.(101) Ownership and control issues affect the price of leased water and limit the parties who may contract and object.(102) Formal leasing arrangements of state banks and trust right programs suggest a strong preference for state control over leased instream flow. Private ownership of instream rights raises concerns succinctly expressed by long-time New Mexico State Engineer Steve Reynolds:

[C]areful consideration should be given to provisions that would limit such

rights to a state agency that could carefully consider the public interest

before making a filing, and perhaps have the power to relinquish any instream

rights if and when it appeared to interfere with development and use of water

that is in the public interest.(103)

On the other hand, private ownership of instream rights might stimulate market development by reducing transaction costs, injecting flexibility into river protection, and leading to better enforcement of the instream right. Private ownership also protects instream flow rights from the ebb and flow of the political tide. As one commentator pointed out,

[p]rivate instream appropriators should be accorded the same right to

initiate the application process and to select, subject to approval by the

Board, the place and purposes of the instream use. Local fishermen, rafting

companies, recreational users and conservation organizations are likely to be

far more aware both of impending threats to a particular river and of the

benefits of preserving a certain level of streamflow than would a government

agency charged with managing all instream appropriations in the state.(104)

These arguments developed in the context of appropriation of instream flow.(105) Where the issue is leasing, there is less threat of a permanent alienation of the water resource and lasting damage to the public interest. Montana has come the farthest toward this realization in its newly adopted short-term lease legislation,(106) which allows any water right holder to convert a right to instream flow or lease a right to another person for instream flow.(107)

Leasing is possible with varying degrees of difficulty outside of the formal state schemes. For parties to claim the benefits of state enforcement of priority date and to avoid forfeiture for nonuse,(108) however, private instream lease arrangements must go through the state transfer or change-of-use process. Temporary changes of use are possible in all four states.(109) Idaho and Montana allow "private" leases that permit leases of water rights outside of state lease or banking programs.(110) "Private" leases are at least theoretically possible in Washington and Oregon. Although Washington law might allow private leasing and, arguably, private ownership of instream rights, state policy is to retain control over instream flow leasing.(111) The same appears to be true of Oregon.(112) At minimum, state transfer processes entail a "no injury" analysis and a public interest inquiry (113)

A change in use cannot result in injury to either senior or junior appropriators. Seniors are entitled to use their rights without new interference, and juniors are entitled to enjoy conditions at least as they found them at the time of appropriation.(114) In the majority of cases, augmenting instream flow will aid downstream rights by increasing base flow. In some situations, where junior appropriators have relied on return flows or transmission losses of an upstream water right, conversion to an instream right may make their supply less certain. In other cases, instream rights may make it difficult for senior water rights holders to move their point of diversion upstream because they "freeze" the flow regime in the reach.(115)

A determination of no injury relies on hydrologic analyses to find the actual consumptive use of a right, the portion that returns to the channel after diversion, the amount escaping to ground water, and the fraction that is irretrievably lost in transmission or in the stream channel. This can be a time-consuming and scientifically challenging problem.(116) One potential lessee looked for assistance from the state water agency nominally in charge of making the no-injury decision. The state generally limits instream flow rights during the change of use proceeding to the amount consumptively used.(117)

A public interest inquiry balances benefits against costs and ensures that water quality, water availability, public safety, the environment, and local economies will not suffer from the change in use. Four Northwest states have some degree of public interest inquiry and some enumerate very specific public interest factors for decision makers.(118)

Northwest states provide notice to affected parties and give them an opportunity to object to a pending transfer.(119) In the usual case, when there are objections, the state agency will hold a hearing and issue an order affirming, conditioning, or denying the change in use. Objectors and parties can seek judicial review of agency decisions in Idaho.(120) In Oregon, the Water Resources Department requires all protests to be resolved before allowing a transfer; deadlocked applications are referred to the Water Resources Commission.(121) Oregon encourages voluntary alternate dispute resolution to resolve objections to changes of use.(122) Washington appeals can eventually be heard by that state's Pollution Control Board.(123) In Montana, an applicant can appeal the decision of the Department of Natural Resources and Conservation (DNRC) first to an administrative law judge and then to the district court.(124)

"Private" leases may appeal to parties who desire less state involvement in the executed lease. These leases may avoid a layer of bureaucratic and political transaction costs. On the other hand, to change the use of a diversionary right to instream use through the state transfer processes is fact-intensive, time-consuming, and often contentious. If a short-term lease is the objective, this sometimes onerous process may engulf any benefits expected for the limited term.

Another possibility is the "wildcat" lease, where the parties enter into an instream flow lease completely outside of the state system. A lessee contracts with an out-of-stream user who agrees to forego use for a span of time comfortably less than the five-year forfeiture period. The diversion stops and the water stays in place over a critical reach. The state does not have to get involved because there is no instream right created, only an existing use foregone for a limited time. Third party concerns are avoided, because water right holders cannot be forced to exercise their rights. This high-risk gambit is best suited to small tributaries with few appropriators where the object is to put water instream over a short but critical reach for a limited time.

"Wildcat" or "paid vacation" agreements are conceptually no different from fallowing agreements, in which agricultural users agree not to use their water for some consideration. The approach is simple, has few transaction costs, and can be done locally without state involvement. As in other instream flow leases, there is the possibility of natural coalitions with downstream juniors who enjoy improved base flow conditions. A potential lessee should not be "risk averse" and should have little concern for priority and enforcement. The lessor must be confident about the validity of the property right and unconcerned about tolling the forfeiture statute. The potential for reduced transaction costs could mean higher prices paid to lessors and lower overall costs to lessees.

On the downside, the leased water has limited protection from downstream juniors, who could deplete the surplus quickly, even without waste or expansion of their use. In addition, only contract principles protect the lessee from lessor default, the arrangement may incur the displeasure of the state water agency and attract scrutiny of the underlying right, the hiatus starts the forfeiture statute running, and there are limited physical settings where the strategy could be effective. The uncertainty of the outcome will undermine many lease arrangements.

C. Leasing Federal Water

Leasing water from the federal government adds layers of complexity.(125) Federal policy is to facilitate transfers from contractors and irrigation districts without imposing additional transaction costs.(126) DOI's main concerns are that project operations not be disrupted(127) and that project. repayment continues.(128) Federal water transfers will have to conform to state transfer rules as well as the rules of the agency and the irrigation districts.(129) The Bureau of Reclamation (BOR) has been involved in many transfers to instream flow in the West, but each BOR project has different authorizing legislation that may limit transfers to new uses or uses outside of project boundaries.(130) Leasing BOR water is essentially an ad hoc process that entails case-specific inquiries in the absence of agency guidelines.(131) The difficulty of negotiating and executing a lease for BOR water adds greatly to transaction costs, which may explain the limited number of these transactions in the West.(132)

The Endangered Species Act(133) may preclude leasing of water or storage in some cases and remove any incentive for market transactions in others.(134) The National Environmental Protection Act (NEPA)(135) may impose additional procedures if leases are "major federal actions significantly affecting the quality of the human environment."(136) Conversion of BOR irrigation storage to instream flow in the Central Valley of California spawned a NEPA challenge by local irrigators,(137) which, though finally defeated, took two years to resolve.

BOR-supplied districts impose another layer of rules. Generally, the district's concern is that water transfers do not impair the ability of the system to serve all of its irrigators.(138) When a patchwork of fields lies fallow, irrigation management becomes more difficult and overall system efficiency tapers off. Irrigation districts drastically restrict water transfers, permanent or temporary, to nonmembers to protect the financial health of the district.(139) Another central concern is that system operation and maintenance costs are met. Lessees may be asked to pay a proportional share of operation and maintenance, even though they are not using the system. In some cases, a lessee could pay more operation and maintenance share than the original irrigator.(140)

Individual irrigators have their own concerns. Converting BOR contract water to instream flow is unfamiliar, nontraditional, and often met with suspicion. Despite legal assurances and attractive financial rewards, many irrigators are unwilling to lease their water, fearing that a lease will become a permanent transfer or will work toward a forfeiture of their rights. Similarly, antipathy toward "environmentalists" may create strong individual and community sentiment against instream flow lessees.

In summary, Pacific Northwest states have laws and agency rules that anticipate instream flow leasing. In all but Oregon, state water managers have created banks or pools of trust water rights to serve the demand for new water uses. These programs attempt to make leasing faster and easier while retaining state oversight and control. Leases are possible outside of these programs, but they require equal or greater state involvement in the change-of-use process. In limited circumstances, instream flow leasing may occur under contract principles with no state involvement. States do not favor private control of instream water uses, however. Federal water from BOR or other sources carries even higher transaction costs because of agency and irrigation district rules and community uncertainty about instream leasing.

IV. LEASES: TYPES, STRATEGIES, NEGOTIATION

A. Markets and Market Failure

In a perfect market, demand and supply determine prices, and resources are efficiently allocated to their highest valued uses. If the water market were perfect, leasing would be commonplace, water would be allocated to the most important and best-informed ends, equity would be preserved, and the state would not have to exercise strong regulatory control over the resource. However, arguments against this simple model are legend and well-founded. The perfect market model ignores the existing distribution of income and treats all people's values as identical. It does not distinguish between needs and wants, it ignores the wishes of future generations, it does not account for subtle impacts or externalities, and it treats all property rights as well-defined.(141)

In the very imperfect water markets of the western United States, transaction costs of water transfers have been unexpectedly high. The high cost has effectively stifled the transfer of water rights through active economic markets.(142) Where water is actively traded, buyers and sellers gain profits at the expense of society as a whole.(143) State reliance on markets to allocate resources may not serve the equity interests of its citizens, who are giving away for free a valuable property interest, and who, in many cases, have bought and continue to pay for wasteful and ecologically harmful practices.(144)

Markets for water are poorly developed in the Pacific Northwest.(145) Helen Ingram and Cy Oggins, both with the Udall Center for Studies in Public Policy at the University of Arizona, speculate that western water markets have failed because the economic market does not fully account for noneconomic community values.(146) Local communities and irrigators put a high value on security, opportunity, and local control of resources.(147) Ingram and Oggins performed their analysis in the context of permanent rural-to-urban transfers, where the disparity of values is great.(148) In the context of leasing instream flow, where the water stays in the community, local control over the resource, or at least the appearance of local control, remains intact. Leases should allay community fears because they are temporary and the benefits accumulate locally.

Leasing arrangements have met considerable resistance in the Pacific Northwest.(149) This resistance may arise from the paradigm shift that accompanies instream flows-a "waste" of good resources and opportunity that often abrogates regional cultural values. Some traditional users may feel threatened by shifting values that elevate instream flow to the level of irrigated agriculture. Perhaps the biggest obstacle is the novelty of leasing flow. The first lease in a watershed or in a state is the most difficult and mistrusted. This "batter-up" phenomenon, in which no one wants to be the first, may explain why Washington's Trust Water Right program has not yet executed a lease. In one watershed in Montana, the second lease for instream flow took only a week to negotiate; negotiations usually take months.(150)

This suggests that instream flow lessees and lessors must do a better job of selling the benefits of instream flow. Rather than approaching a dewatered stream as an outsider with a hand full of cash bent on reform, lessees should look for opportunities to build coalitions with those in the local community whose interests in instream flow naturally coincide. Fishers, hydropower generators, outdoor recreationists, downstream junior appropriators, local chambers of commerce, white-water enthusiasts, water supply officials, and even local school children all have a potential stake in increased instream flow. The financial contribution of these various factions is not as important as their participation. When a flowing river becomes a local treasure, a symbol of community unity and a playground, leasing flow to keep it alive will become much easier.

Public trust and other lawsuits that involuntarily divest users of their water can work against market development.(151) Involuntary transfers under the public trust doctrine(152) and other legal theories generate uncertainty, detract from water right values, and harden the resolve of diverters to keep the status quo of maximum use.(153) Other commentators find that suits under the public trust doctrine, the Clean Water Act,(154) the Endangered Species Act,(155) and federal reserved water rights doctrine complement voluntary transfers.(156) As Bonnie Colby points out, "[t]here is no incentive quite so effective in stimulating voluntary negotiations and transfers as the threat of a protracted and costly court battle."(157) Voluntariness is a hallmark of most lease transactions, but motivation comes from many quarters.

B. Valuing Instream Water

There are competing methods for putting a dollar price on water. Each side in a water rights lease wants to derive maximum value. Often the gulf between them is very wide. One failed negotiation in Montana had one side offering $10,000 for 3 to 4 cfs, while the other side held out for $200,000.(158) In practice, price is set in a variety of ways, usually as a result of the unique circumstances surrounding the lease. Price might be tied to the cost of improvements necessary to conserve water, to the foregone revenues of farm production, to the going market price in the region; or the parties may pull the price out of a hat.

Economists look at the benefits generated by a given water right in various settings and estimate a price from those data.(159) A common method is to measure the value of the water to the seller based on the profit it delivers.(160) For a farm, this could be the value of crops raised with and without water. For a hydroelectric generator, the value may be the net profit from each kilowatt. A market-based method would estimate the replacement value of the water supply, the value of similar land with and without water supply, or the price of replacement power.

A purchaser of instream flow would calculate the value of water based on different criteria. Recreation, nonuse, local economic development, water quality, and fish and wildlife benefits can be approximated in dollars to guide a potential lessee's decision on what an instream flow is worth. Economic values of instream flow can be measured in a manner that allows comparison to value diversionary uses; marginal values of instream flow may be greater than marginal values of diversionary uses.(161) One study estimated that water used in hydropower generation on the mainstem Columbia, even when shaped for fish migration, produces twice the revenue it would in agriculture.(162) This suggests that lessors and lessees' negotiating price should be able to strike a reasonable accord if they are able to look objectively at the value of the water.

Clay Landry offers some operational questions to assist lessees in valuing water.(163) What is the legal nature of the property right? What is the highest and best use for the water? What is the value of future uses of the water right? Is the current use maximizing benefits or profits? What is the water right's overall contribution to the land value? What types of uses and users are buying and selling water rights? What is the range of alternative uses for the underlying land? These questions often require a range of values or subjective answers, but they outline a decision structure that could be uniformly applied to water lease transactions.

Prices for instream flow in the Pacific Northwest vary widely. Water leased out of the Idaho water supply bank for hydropower went for as little as $2.70 an acre foot in 1994.(164) Salmon recovery water from the Boise River bank went back to the Bureau of Reclamation, the original depositor, for $0.32 an acre foot--the local committee administrative fee.(165) The maximum 1994 bank rate in Idaho was $8.45 an acre foot,(166) despite a long-standing drought in that state.

In 1994, the Montana Department of Fish, Wildlife, and Parks leased four water rights whose adjusted prices ranged from $1.11 to $50.00 per acre foot.(167) One water right was leased from the U.S. Forest Service for a dollar ($0.03 an acre foot).(168) One lessor accepted far below market value and took a tax deduction for the balance of the lease price.(169)

In Washington's Yakima Basin, users and project operators invited the Environmental Defense Fund (EDF) to develop a plan for instream flow leasing pursuant to the Yakima Trust Water Rights Program statute.(170) As part of that effort, EDF estimated that nearly 100 Kaf per year could be available for $30.60.(171) The 1991 price analysis in Oregon for irrigation water rights projected a price range from $25 to $65 dollars an acre foot per year depending on yield per acre and the market price of alfalfa.(172) In 1994, Oregon Water Trust leased water rights costing from less than a dollar to $34 an acre foot.(173) Bonneville Power Administration leases in the Malheur River Basin are estimated to cost $10 to $20 per acre foot annually,(174) with a total price after all costs are figured of $50 to $80.(175)

As the market for instream flow matures in the Pacific Northwest, transaction costs will decrease. Decreasing crop subsidies and increasing demand for municipal, hydroelectric, and fisheries water will combine to make a lease market for instream rights. The instream flow market is immature and influenced by a few large federal players. The Water Strategist, a clearinghouse of western water transactions, states: "Federal agencies and state legislatures are in the spotlight: they must design regulation and laws that allow those markets to serve the multiple purposes demanded by market participants while protecting the concerns in rural communities over the loss of traditional ways of life."(176)

C. Leases and Negotiation

Forming a lease for instream flow is highly site-specific and requires a case-by-case approach to adapt state laws and rules.(177) Nevertheless, Oregon and Idaho have standard lease forms for water transactions.(178) Montana attempted to generate a standard lease but found that leases were too individual to use a single model.(179) The standard lease forms share elements that should be part of any lease.(180)

Lease arrangements range from the straightforward to the Byzantine. Where there is sufficient will to make a deal, parties can usually create a win-win situation that compensates the lessor fairly and serves the instream interest well. State programs tend to be less imaginative in their approach, but when leases become more common, parties will become bolder in their negotiation and problem solving.(181)

Negotiating a typical lease requires preliminary research, a strategy, and patience. Lessees should prepare thoroughly for negotiations and have clear, measurable goals. Decisions about price, legal constraints, location, importance of the resource or activity, and future relationships in the watershed cannot be put off until negotiation time. Strategies may change in the course of negotiation, but lessees should have plans for a variety of situations. Often there is no bright line between preparation and negotiation; parties have informal talks, offer creative elements of a deal, and take time to think things over before anything is written.

For a lessee, gathering information and satisfying state approval processes are the two most time- and resource-intensive activities. Lessees estimate that more than half of their time and resources are spent on research, paperwork, and state agency transfer proceedings before closing deals.(182)

The obvious first step is to identify the purpose of the instream flow augmentation. Each end purpose has unique requirements. For example, recreational boating may demand that releases are timed carefully over a season, while fisheries may need water of a certain quality and temperature with completely different timing. Lessees need to set concrete and measurable goals to fulfill these requirements, both for initial scoping and later evaluation of the lease project.

Identifying candidate streams or reaches that serve the lessee's purposes can be simple or difficult. The lessee's purposes dictate how broad the range of possible watercourses will be. Local groups may only look for opportunities in a single watershed. Regional groups might look for leases over many states. Differing purposes like fishing, boating, hydropower, and riparian preservation will naturally narrow the field of choices. State fish and wildlife managers and water managers can be very helpful in identifying reaches where leases are possible and desirable for ecological purposes. In other cases, the lessee may have to survey candidate streams.(183)

Water supply, both physical location and amount, also limits lease opportunities. Usually it is up to lessees to locate likely water rights to serve their purposes. Lessees might attract information through advertisement or standing offers to lease. In some cases, water is simply not available at any price. More often, what water there is cannot be regulated or delivered with enough certainty to make a lease worthwhile. For example, Bonneville Power Administration has negotiated with farmers in Oregon's Malheur River Basin for 16 Kaf, but the deal may not close because the water can neither be shaped nor delivered at the critical time for Chinook salmon migration.(184) Of eighty potential leases in Montana, fewer than ten have so far had a useable combination of priority, location, amount, and timing.(185)

Effective solutions for a target reach depend on a well-hatched water supply. Hydrology and computer expertise are very useful for mapping watersheds, evaluating water deals, and measuring progress. However, high-tech and experts should be complemented by an on-the-ground representative with practical water experience to identify opportunities that a satellite might miss.(186) As an alternative or supplement to individual negotiations, standing offers and sealed bid auctions are other strategies that could entice lessors.(187)

In the initial planning for a lease, a lessee should anticipate lessor issues and generate multiple lease scenarios. Simple cash for water deals are the most common in the Pacific Northwest so far, but multiple-party exchanges, in-kind payment, dry-year options, and other deals will be more common as the market matures.(188) Creativity in terms is essential to satisfying local needs and aligning the purposes of an instream lease with community values. For example, in Montana, one lessor's criterion was that he be able to raise the same amount of cattle after dedication of his water right to instream flow.(189) As long as his carrying capacity did not change, the state Trust Water program could lease his right for a very small fee. The final lease arrangement provided that the state would pay for any foregone profits of the livestock operation attributable to the decrease in water.(190) In this case, money made the lessor whole, but it was not the controlling issue in negotiations.

Lessees should look for possible coalitions. More coalition building is necessary for instream values to take root, especially at the local level. Leasing for instream uses has a tremendous free-rider problem that could be converted into a positive through coalitions, especially if members could contribute financially. Instream uses are commensal, and conflicts between instream users are generally easy to resolve. If local values are to be respected and folded into a leasing effort, public comment and education are essential. When communities begin "owning" their free flowing rivers and making decisions about them, watershed-based management becomes more possible.

In any water lease, as part of the valuation process and as an overall test of reasonableness, lessees should look at disadvantages and costs. Monitoring and enforcement of the instream right is fraught with uncertainty.(191) The quantity, quality, timing, and temperature of the water may be so out of line with the program purposes that returns are marginal or nonexistent. Mitigation of injury to other rights, liability and mortgage insurance, and patrol duties associated with higher river use may create a burden that the benefits cannot justify. Governments, irrigation districts, and local public opinion may impose insurmountable barriers to a lease. An objective listing of negatives is not just a bargaining tool, it is a checklist for effectiveness in the final lease.

As in any other negotiation, buyers should know their absolute ceiling price before sitting down at the table. Estimates of the lessor's financial exposure and probable price range may often require the services of an economist. Government agencies may be at a distinct disadvantage because this information may be public record and could cut into the agencies' bargaining position.(192) Lessees should look for nonfinancial levers, such as potential abandonment problems, wasteful practices, or noncompliant metering or screening on diversions. Carrots are usually more effective than sticks, however. Efficiency improvements, such as pipelines or ditch lining, ensure that the original use will continue, and may also improve property values.(193)

Emotional and subjective factors may be the most important elements in a water right lease. Nothing augurs better for a lease deal than a lessor's desire to do good.(194) On a more subtle individual lessor needs.(195) In-kind payments of hay, power, or water may appeal to the security and control concerns of a lessor and allow a level of business-as-usual that is reassuring to neighbors. Volunteer or paid "stream stewards" not only protect the L stream right, but also give a sense of control and continuity to communities.

Negotiations must be built on trust. Instream leases do not materialize overnight or even in a year.(196) Rather than adversarial circling, lease parties need to develop a relationship, find common goals, and reduce suspicion. A skilled negotiator is probably not as important as a sincere one who has face recognition.(197) Lessors from other watersheds who can discuss their lease experiences could be an effective way of reduce suspicion. A coalition front with members from the local area underscores the idea of local benefits and preservation of local control. An instream flow lease is an ongoing relationship.

Finally, media coverage should be encouraged to the extent that parties are comfortable. Media stories about creative solutions and win-win situations generate interest and enthusiasm. Other lessors and lessees will transplant successful instream arrangements to new watersheds and a lease market may develop for small water rights. Press coverage is a tool that nonprofits use to great advantage. Government lease programs have not been as adept at making headlines.

V. CONCLUSION

A lease for instream flow should enjoy a lower level of scrutiny, less delay, and fewer transaction costs than sale, bequest, or other permanent transfer. Leases have a limited life span and can be adjusted fairly easily in mid-course. Benefits accrue to the public at large and are concentrated in the area of origin. Why then, the glacial pace of instream flow leasing? One explanation is that leasing, especially for instream flow, is a new realm and all parties are proceeding cautiously. Another explanation is that state agencies do not have the budgets or personnel to develop a rapid, efficient lease or transfer program, despite their good intentions. A further complication is that information about threatened resources and potential solutions is slow to accumulate and indicts many status quo uses.

Until states are willing to relinquish control over water leasing and allow individuals to hold private property rights to instream flow, state government and water management bureaucracy will control the pace of instream flow leasing. Pilot lease programs that encourage private leasing in Oregon and Montana will tell whether markets for instream flow are possible and viable.

Markets can do a good job of preserving instream flow values and reflecting public concern with aquatic resources. Markets for instream water will never be perfect because streams are not fungible--each instream flow situation is unique. Markets are not the sole answer to equitable and flexible water allocation; they just recast the question of highest and best use in monetary terms. There will always be a role for some state oversight and public participation in water allocation decisions.

Monitoring and enforcement of instream rights are difficult, which cuts against the will to enter into leases. What will a lessee get for the investment, and will the lessee have to watch every minute? Better state enforcement of rights is needed, not just for instream rights, but for all water uses. Statutes in the Pacific Northwest that require headgates and metering on diversions are widely ignored,(198) as are regulations on fish passage and screening. If water and fish are stressed from other activities, leases lose effectiveness.

Leasing for instream flow is just one strategy that is part of the larger reallocation of the Pacific Northwest's water. Leases are a way to put water back into critical areas before other permanent or more formal measures come on-line. Yet leasing is likely to be around forever because there will always be dewatered, overappropriated, or polluted rivers and lakes in need of assistance. And there will always be people who feel the power of rivers and know that they run through all of our lives.(199)

Appendix B. Components of a Typical Instream Flow Lease

The following items should be included or at least considered in a lease of water rights.(200)

Names of the parties--The lessor, lessee, and any other parties who

render water, payment, or services should be included in an instream

lease, as well as the state as trustee and holder of the instream right.

The lease should clearly lay out each party's duties under the lease,

such as the lessor's duty not to use the water during the lease, the

state's duty to act as trustee, and the lessee's duty to enforce the right or

measure flow. Addresses and phone numbers are also useful.

Statutory authority--Statutes authorizing the bank or trust program

should be cited, along with other transfer or lease statutes implicated in

the transaction. The lease should also recite the suspension of tolling of

the forfeiture statute and should state that there is no intent to abandon

the right.

Rights being transferred--The lease should specify the type of right, its

state number, the beneficial use, the priority date, the amount of water

historically diverted and consumptively used, the amount actually transferred,

the original point(s) of diversion and place(s) of use, the season

of use, and any other relevant information, including evidence of perfection,

certificates or licenses, contracts, and maps.

Rights being created--The lease should specify the beneficial use of the

leased water, its priority, an accurate description of the affected

reach(es), including beginning and ending points and the flows and

timing of flows for each reach, the season of use, and any other relevant

hydrologic information. Maps are very helpful. A brief recitation of how

the instream flow will serve the public interest is required in Oregon. A

general statement of purpose for the lease and instream flow is

recommended.

Amount and type of consideration--Usually, the amount of consideration

will be a dollar figure. The lease should be specific about the timing,

amount, and order of payments, and the penalties for late payment.

Making prices public has encountered resistance because it may erode

later bargaining positions. Conversely, public knowledge of prices helps

stimulate interest in leases and leads to a market that functions better.

Term of the lease--The lease should include the beginning and ending

dates for the agreement.

Monitoring plan--The lease should recite the monitoring regimen, state

the responsible party for data collection, and set a date for reporting on

the collected data.

Renewal terms--Renewal terms should be included, if applicable.

Signatures--Parties must sign to fend off challenges under the Statute of

Frauds. Any other necessary parties, such as watermasters, irrigation

districts, and federal or tribal officials should also sign the lease

agreement.

Reversion--The lease should state the time and manner of reversion to the

lessor.

Access to the stream--Creating a riparian environment invites public use.

Lessors and lessees should agree on access routes and times in the lease,

and outline who is responsible for patrol, enforcement, and cleanup.

Mitigation--If other rights are impacted and mitigation is necessary, the

lease should describe the mitigation and outline who is responsible.

Default--The lease should describe the consequences of nonpayment or

nondelivery, including provisions for liquidated damages, attorney fees, and

exceptions for "acts of God."

Modifications--Any provision for mid-course corrections or changes in the

lease should be included.

Mediation--Parties may want to settle any differences under the contract

through alternative dispute resolution.

Other "boilerplate" provisions found in commercial leases may be useful

in water leases. Indemnification of the lessor by the lessee or lease holder

may make the lessor more willing to enter into a lease. Lessees may have

to acquire liability insurance and should be prepared to answer any legal

challenges. A notice provision will clarify the method of communication

and the agent for service of process or other important communications.

The lease should have a clause that creates a binding effect on any heirs,

successors, or assignees. An "execution in counterparts" clause makes all

copies of the same force and effect as the original. A "nonwaiver" clause

isolates the failure of any condition in the lease and avoids the failure of

the entire agreement. A sublease and assignment restriction is probably

redundant if only the state can hold the lease. A prohibition on liens

against the lease is standard. Finally, an integration clause declares the

lease document to be the entire agreement superseding all other

agreements.

Appendix C. Types of Leases

The following briefly describes several types of water lease arrangements that have succeeded alone or in combination in the Western states. (201)

Lease for a fixed term--Lessees contract to use a water right for a given

span of time for a fixed or variable rate. Often there is a renewal option.

This is the most common type of lease arrangement. It offers simplicity,

continuity, and certainty for all parties. Lessees can in some cases

continue farm operations through dry-land farming practices.

Dry-year option--Lessees whose target reaches are susceptible to

dewatering only in dry years can purchase an option to lease water in

those dry years. For the lessee, option payments are less onerous than full

lease payments in wet years. For the lessor, the option payment is a

bonus. Lessors need sufficient notice that the lessee intends to exercise

the right instream so that the lack of water does not interfere with ranch

or farm planning and management. Payments in years that the lease is

exercised may be monetary, "in kind" to support the farm or ranch activity,

or a combination of both. Although the dry-year option is fairly common in

the West, Montana farmers, many of whom need late-season irrigation

water, rejected this type of lease because of the uncertainty it brought to

their planning.(202)

Subordination agreements--Lessees contract to take their water out of

priority, and lessors agree not to call the river against the lessees' use. For

instream water lessees, this is probably not a primary method of putting

water instream. Subordination agreements could be useful in combination

with leases for other junior rights to improve certainty in dry years.

Conservation offsets--Lessees invest in efficiency improvements in return

for a portion of the salvaged water. Lessors continue their use with

reduced consumption.(203) These arrangements work well as permanent

transfers, too.

Exchange/barter agreements--Lessees agree to exchange their water

source for the water source of the lessor. Compensation could flow either

way in this lease, depending on water quality, reliability, and other factors.

This presupposes that the instream lessee has water to exchange. Like

the subordination agreement above, this is probably not

a primary means of acquiring water instream and will be most useful as a

supplemental strategy. Exchanges can become extremely complex, with

multiple parties and varying times and places of use.

(1) For a succinct explanation, see David H. Getches, Water Law in a Nutshell 74-77 (2d ed. 1990). Seventeen western states allocate water resources under the prior appropriation doctrine, whose principal tenets are "first in time is first in right" and "use it or lose it." Id. at 6-7. (2) Diversion is not mentioned specifically in the 1909 Water Rights Act, 1909 Or. Laws 216, [subsections] 45-46, but even if arguably in effect, diversion was no longer necessary after Or. Rev. Stat. [sections] 537.332 (1995) was passed in 1987, making instream rights possible. 1987 Or. Laws 859, [sections] 2. Idaho authorized in-place use of water in 1925 to preserve Big Payette Lake. 1925 Idaho Sess. Laws 83, [sections] 1, codified at Idaho Code [sections] 67-4301

(1995); State, Dep't of Parks v. Idaho Dep't of Water Admin., 530 P.2d 924, 927-28 (Idaho 1974) (affirming that water diversion uses specified in Idaho Const. art. XV, [sections] 3 are not exclusive). Washington's earliest water code mentions diversion, 1891 Wash. Laws 142, [sections] 1, but Wash. Rev. Code [sections] 90.14.031 (1994), adopted in 1969, lists recreation, fish, wildlife, and navigation as beneficial uses. 1969 Wash. Laws Ex. Sess. 284, [sections] 12; see also Of field v. Ish, 57 P. 809, 810 (Wash. 1899) ("The right to use the water is the essence of appropriation. The means by which it is done are incidental."). Montana generally requires diversion except in the Upper Clark River Basin. Montana appropriation law requires diversion, impoundment, or withdrawal; reservation by a public agency; lease by Montana Department of Fish, Wildlife, and Parks; or maintenance and enhancement of stream flows in the Upper Clark River Basin. Mont. Code Ann. [sections] 85-2-101(1) (1995) (temporary). (3) See Frank J. Trelease, The Concept of Reasonable Beneficial Use in the Law of Surface Streams, 12 Wyo. L.J. 1, 6-14

(1957) (discussing beneficial use in appropriation law); Idaho Code [subsections] 42-104 (1990); Idaho Code [subsections] 67-4301 to 67-4312

(1995); Mont. Code Ann. [sections] 85-2101(3) (1995); Or. Rev. Stat. [sections] 537-170(8) (1995); Wash. Admin. Code [sections] 173-500-050(4)

(1995). (4) Water banks are state-run pools of water rights that "rent" water to users for a fee. See, e.g., Idaho Admin. R. 37.02.03 (1994).

(5) In all of the Pacific Northwest states, water is a public resource, the property of the people of the state. See, e.g., Idaho Const. art. XV, [sections] 1 Mont. Const. art. IX, [sections] 3(2); Or. Rev. Stat. [sections] 537.110 (1995); Wash. Rev. Code [sections] 90.03.010 (i994). Possessing and protecting property, by contrast, is often considered an inalienable personal right. Idaho Const. art. I, [sections] 1; Mont. Const. art. II, [sections] 3; Mont. Code Ann. [sections] 70-1-101 (1995); Or. Const. art. I, [sections] 18; Wash. Const. art. I, [sections] 3. (6) See Robert E. Clark, Waters and Water Rights [subsections] 53.2, 55.3 (1981). (7) See Janis Carpenter, Enforcement of Instream Water Rights 3-4 (May 1995) (discussion paper, on file with author).

(8) Oregon Water Trust, a nonprofit organization dedicated to increasing the availability of instream water in Oregon, executed four leases in 1994 and ten more in 1995 for instream flow to support anadromous and resident fish in Oregon. Telephone Interview with Andrew Purkey, Executive Director, Oregon Water Trust (Feb. 22, 1996). Montana Game and Fish held five leases in 1994 for fisheries support and added two more in 1995. Bonneville Power Administration has leased water from Idaho irrigators for mainstem Columbia River flow augmentation since 1993.

(9) See infra part III. Montana's new leasing statute allows individuals to hold instream rights until 2005. H.B. 472, 54th Leg. (1995) (enacted). Oregon Water Trust will continue to test the legal authority of states to limit public ownership of instream rights. Telephone Interview with Andrew Purkey, Executive Director, Oregon Water Trust (Apr. 25, 1995). (10) E.g., Bevan v. DOE, Pollution Control Hearings Board No. 48 (1972) (certificate issued for "fisheries research" in a pond on private property). The Washington Department of Ecology feels that this permit is arguable as precedent because Professor Bevan was a fisheries specialist at the University of Washington who conducted research on his own property. His pond was off the main channel of the stream, mimicking a diversion, for fish research, and, thus, for a credible nonconsumptive beneficial use.

(11) See, e.g., U.S. Army Corps of Eng'rs et al., Columbia River System Operation Review: Scoping Document 4 (1991).

(12) Oregon Water Trust prefers purchase over lease whenever possible. However, leasing is a desirable strategy for Oregon Water Trust. It is a "foot in the door," which builds trust and credibility and is useful for reaches that only need dry year relief. It also takes advantage of pending forfeiture situations where a right holder may not want to sell. See generally Lori Potter, The Public's Role in Acquisition and Enforcement of Instream Flows, 23 Land & Water L. Rev. 419, 420 (1988) (discussing diverse public involvement in instream flow issues, including membership in sports, hunting, and conservation organizations; public enforcement of state and federal environmental statutes through citizen suit provisions; and citizen ownership of instream flows).

(13) Shaping refers to the change in the rate of flow over a given time. The term shaping probably derives from the appearance of a unit hydrograph, a shifted bell-shaped curve of flow rate (y-axis) over time (x-axis). Shaping is important to control the rate of increase and decrease in flow (ramping), the duration of peak flow, and the amount of peak flow, all of which are important factors for fisheries, recreation, power generation, riparian health, and public safety. (14) Mont. Const. art. IX, [sections] 3(3); Idaho Code [sections] 42-229 (1995); Wash. Rev. Code [subsections] 90.44.020, 90.44.040 (1994); Or. Rev. Stat. [subsections] 537.505-537.796 (1995). (15) Idaho has the best developed conjunctive use rules. Idaho Admin. R. 37.03.11

(1994). The rules' validity has been challenged in the Snake River Basin Adjudication (SRBA) Court as violative of the prior appropriation doctrine. Petition for Declaratory Relief, SRBA Court (Jan. 6, 1995). Wash. Rev. Code [sections] 90.44.030 (1994) states that surface water rights are superior to ground water rights, a rudimentary conjunctive use system. The Washington Department of Ecology is developing a hydraulic continuity policy. Oregon has separate, unintegrated rules for ground water. Or. Rev. Stat. [subsections] 537.505-537.796 (1995). (16) Oregon has different, more stringent rules for interbasin transfer. Or. Rev. Stat. [subsections] 537.801-537.870 (1995). Idaho, Washington, and Montana do not specifically regulate interbasin transfers, but nevertheless great hurdles exist in these states in the form of "public interest" standards and "no-harm" rules. Idaho Admin. R. 37.03.08.045(e) (1994); Wash. Rev. Code [sections] 90.03.380 (1994); Mont. Code Ann. [sections] 85-02402 (1995). (17) Or. Rev. Stat. [subsections] 537.801-537.870 (1995); Cal. Water Code [subsections] 11128, 11460-11463

(West 1992); Colo. Rev. Stat. [sections] 37-45-118(I)(b)(II) (1990); see Lawrence J. MacDonnell & Charles W. Howe, Area-of-Origin Protection in Transbasin Water Diversions: An Evaluation of Alternative Approaches, 57 U. Colo. L. Rev. 527 (1986).

(18) Mont. Code Ann. [sections] 85-2-316 (1995) (giving the state, political subdivisions thereof, state agencies, the federal government, and federal agencies the power to reserve); Or. Rev. Stat. [subsections] 537.356-537.358

(1995) (allowing any state agency to reserve); Wash. Rev. Code [sections] 90.03.345 (1994) (allowing the Washington Department of Ecology to reserve).

(19) See, e.g., Wash. Rev. Code [sections] 90.54.050(2) (1994). (20) Water rights are appurtenant to the land within a federal project and are more the property of individual landowners than the federal government. However, the federal government does have a protectable interest in project water rights. See Ickes v. Fox, 300 U.S. 82, 94-95 (1937) (holding that the federal government, by virtue of its diversion, storage, and distribution of water at a reclamation project, retained property rights to irrigation works, but the owners of water rights appurtenant to the land retained their rights). Some of the federal nonirrigation uses on the Columbia and Snake Rivers lack state law water rights. For example, flood control and navigation in most U.S. Army Corps of Engineers projects do not have state water rights associated with them. In many federal projects, power generation flows do not have a state water right. (21) Pacific Northwest Electric Power Planning and Conservation Act (Northwest Power Act), 16 U.S.C. [subsections] 839-839h (1994).

(22) Endangered Species Act of 1973, 16 U.S.C. [subsections] 1531-1544 (1994).

(23) 16 U.S.C. [sections] 839(1)-(6) (1994).

(24) For a complete history of NPPC's attempts at flow augmentation in the Columbia Basin, see John Ogan, Comment, The Need for a Smolt Travel Time Objective in the Columbia Basin Fish and Wildlife Program to Protect and Restore the Northwest's Imperiled Salmon Runs, 24 Envtl. L. 673 (1994). (25) NPPC must prepare a Regional Energy and Conservation Plan that includes a Columbia River Basin Fish and Wildlife Program. 16 U.S.C. [sections] 839b(h)(1)(A) (1994). (26) See, e.g., Northwest Resource Info. Ctr., Inc. v. Northwest Power Planning Council, 35 F.3d 1371, 1395 (9th Cir. 1994) ("The Council's approach seems largely to have been from the premise that only small steps are possible, in light of entrenched river user claims of economic hardship."). Even NPPC admits that "Immediate measures are not sufficient to rebuild weak populations. National Power Planning Comm N, 2 Strategy for Salmon 23 (1992). The National Marine Fisheries Service's most recent Biological Opinion set a flow regime much more generous than the proposed (and seldom met) NPPC water budget of 85 Kaf (85,000 acre feet). See National Marine Fisheries Serv., U.S. Dep't of Commerce, Endangered Species Act--Section 7 Consultation, Biological Opinion, Reinitiation of Consultation on 1994-1998 Operation of the Federal Columbia River Power System and Juvenile Transportation Program in 1995 and Future Years 103 (1994).

(27) 16 U.S.C. [sections] 839b(h)(11)(A)(ii) (1994).

(28) Brownlee Dam is the last dam in the Hells Canyon complex owned by Idaho Power, a private electric utility that is outside of BPA's control. In practice, Idaho Power and BPA often coordinate operations.

(29) Telephone Interview with Dan Daley, Fisheries Biologist, Bonneville Power Administration (BPA) (May 8, 1995). Under a recent Biological Opinion issued by the National Marine Fisheries Service, the Bureau of Reclamation

(Bureau) has increased responsibility for leasing water to meet water budget goals. National Marine Fisheries Serv., supra note 26. NPPC and BPA efforts to lease mainstem water may be overwhelmed by the demands of the current water budget, which procures enough water in a regulatory manner to obviate the BPA leases. Idaho Power also leases considerable amounts for hydropower generation. Id. (30) Bureau of Reclamation projects provide water under contract for up to forty years. Contract requirements and restrictions vary under the authorizing statue of each project. See generally Duane Mecham & Benjamin M. Simon, Forging a New Federal Reclamation Water Pricing Policy: Legal and Policy Considerations, 27 Ariz. St. L.J. 507 (1995). (31) Richard Roos-Collins, Voluntary Conveyance of the Right to Receive a Water Supply from the United States Bureau of Reclamation, 13 Ecology L.Q. 773, 848-50

(1987). (32) Id. at 781-82.

(33) Instream flow, and the beneficial uses that it supports, must be legitimate project purposes within the authorizing federal legislation. Id.

(34) Id. at 818.

(35) Upper Willamette River storage is managed this way, but other Corps projects, such as Libby Reservoir in Montana, are managed by the Corps alone.

(36) Telephone Interview with Dick Cassidy, U.S. Army Corps of Engineers, Water Management (Apr. 11, 1995). In the spring of 1994, irrigators leased 304.65 acre feet of Rogue River water for $5 per acre foot. Roger Vaughan & Rodney Smith, 1994 Annual Transaction Review: Markets Expanding to New Areas, Water Strategist, Jan. 1995, at 15.

(37) See infra part III.

(38) S.B. 516, 68th Leg. (1995) (to he codified as amended at Or. Rev. Stat. [sections] 537.211). (39) Washington State Dep't of Ecology, Pub. No. 92-88, Trust Water Right Program Guidelines at 8-9 (Sept. 10, 1992); Telephone Interview with Cynthia Nelson, Washington Department of Ecology (Apr. 25, 1995). (40) Idaho Code [sections] 42-1762 (1990 & Supp. 1995). (41) Conditional rights presumably would be less expenSive because they are less certain and well-defined property rights. Conditional rights are generally more junior in priority, too. (42) See Cherokee Nation v. Georgia, 30 U.s. 1, 17 (1831); Worcester v. Georgia, 31 U.s. 515, 555 (1832); see also Felix S. Cohen, Handbook of Federal Indian Law 220 (2d ed. 982). (43) Indian Non-Intercourse Act, 25 U.S.C. [sections] 177 (1994); see also infra part III. (44) Congress delegated the power to approve land leases to the Secretary of Interior. 25 U.S.C. [sections] 415 (1994). Indian law scholars disagree whether congressional or secretarial approval is necessary for water leases off the reservation. For a concise discussion of off reservation water marketing, see Elizabeth Checchio & Bonnie G. Colby, The Context for Indian Water Settlements, in Water Law, Trends, Policies and Practice 179, 190

(Kathleen M. Carr & James D. Crammond eds., 1995) [hereinafter Water Law].

(45) See, e.g., Jane Marx & Susan M. Williams, Water Rights Administration on Indian Reservations, in Water Law, supra note 44, at 204. For a contrasting view of Indian sovereignty over water resources, compare Dennis C. Cook, The Juxtaposition of Two Doctrines: Inherent Tribal Sovereignty and Reserved Water Rights, in Water Law, supra note 44, at 196. (46) See, e.g., Jane Marx & &san M. Williams, Water Rights Administration on Indian Reservations, in Water Law, supra note 44, at 204. (47) Although each treaty is different, courts have affirmed that there is an underlying reserved water right for treaty fishing rights. See United States v. Winans, 198 U.S. 371, 384 (1905); United States v. Adair, 723 F.2d 1394, 1408 (9th Cir. 1983), cert. denied, 467 U.S. 1252 (1984); Colville Confederated Tribes v. Walton, 647 F.2d 42, 48

(9th Cir. 1981), cert. denied, 454 U.S. 1092 (1981). Even where such water rights have not been settled, courts have allocated water to protect treaty fishing rights. See Kittitas Reclamation Dist. v. Sunnyside Valley Irrigation Dist., 763 F.2d 1032, 1035 (9th Cir. 1985), cert. denied, 474 U.S. 1032

(1985). Reserved rights supporting on- and off-reservation treaty fisheries of the Nez Perce Tribe are at issue before the SRBA Court.

(48) Winters v. United States, 207 U.S. 564 (1908) (Appellants were restrained from constructing or maintaining dams or reservoirs on the Milk River by an agreement which established the Fort Belknap Reservation; the COUrt held that the agreement impliedly reserved sufficient amounts of water from the river to the reservation for irrigation purposes.). (49) In re General Adjudication of All Rights to Use Water in the Big Horn River System, 835 P.2d 273 (Wyo. 1992).

(50) Id. at 279.

(51) Id. Four of the five justices wrote opinions and left a tangled trail of reasoning. Three of the five seem to agree on the issue that the tribes could transfer Winters water that had been applied to beneficial use to on-reservation instream flows. Id. at 285 (sardine, J., concurring in part and dissenting in part); id. at 289 (Brown, J., concurring in part and dissenting in part); id. at 285 (Golden, J., dissenting).

(52) This deduction is very speculative. It is not clear whether perfecting Winters rights in this way is necessary, or, if it were done, whether it would be effective in a transfer strategy. Neither the district court, the Wyoming Supreme Court, or the U.S. Supreme Court fully answered the question of how these rights might finally be exercised outside of irrigated agriculture. The Department of the Interior supports the transfer of Winters water to any beneficial use, regardless of its "pedigree." 2 Op. Solic. Indian Affairs Dep't 1930 (1964).

(53) Although many reserved and treaty rights have been quantified and prioritized in the Pacific Northwest, no state water rights adjudication within the ambit of the McCarran Amendment, 43 U.S.C. [subsection] 666(a)

(1998 & Supp. V 1993), is complete in the four states of the region.

(54) E.g., Southern Arizona Water Rights Settlement Act of 1982, Pub. L. No. 97-293, 96 Stat. 1274 (1982) (allows limited off-reservation leasing); Fort McDowell Indian Community Water Rights Settlement Act of 1990, Pub. L. No. 101-628, 104 Stat. 4480, 4480-92 (1990)

(allowing the Community to lease CAP (Central Arizona Project) water to the city of Phoenix, Arizona).

(55) The Fort Peck-Montana Compact makes tribal water immediately available for lease and transfer under the general Montana lease scheme. Mont. Code Ann. [subsection]85-20-201 (1995). The Northern Cheyenne Indian Reserved Water Rights Settlement, Mont. Code Ann. [subsection]85-20301 (1995), authorizes off-reservation leases, but makes them subject to state law. In Idaho, the Fort Hall Indian Water Right Settlement Act, Pub. L. No. 101-602, 104 Stat. 3059 (1990), authorizes a tribal water bank to market part of the tribe's allocation.

(56) The Salt River Pima-Maricopa Indian Community Water Rights Settlement Act provides for off-reservation leasing of Central Arizona Project water already in use by cities in the Salt River Basin. Pub. L. No. 100-512, 102 Stat. 2549 (1988). The pending Shoshone-Bannock Tribes settlement allows off reservation marketing of tribal water in storage, but limits transfer of individual allottee rights and future-use water to on-reservation use only. Telephone Interview with Candy Jackson, Attorney for the Shoshone-Bannock Tribes (May 5, 1995).

(57) Telephone Interview with Candy Jackson, supra note 56.

(58) Telephone Interview with Rebecca Craven, Attorney for the Nez Perce Tribe (May 4, 1995); Telephone Interview with Candy Jackson, supra note 56.

(59) See IDAHO CODE [subsection]42-101 (1990). Other Northwestern states are not so explicit. See Robert E. Clark, Waters And Water Rights [sections] 12.01-.02 (Richard E. Beck ea., 1991).

(60) For an overview of each state's statutes and rules, see infra app. A.

(61) See WASH. REV. CODE [subsection]90.03.005 (1994) (aiming "to promote the use of the public waters in a fashion which provides for obtaining maximum net benefits" from water use and diversions); OR. REV. STAT. [subsection] 536.220 (1995) (aiming -to encourage, promote and secure the maximum beneficial use and control" of water resources through the coordinated efforts of a single state agency); Mont. Code Ann. [subsection]85-2-102(2)(a)-(c) (1995) (describing the beneficial use of water as favoring "the appropriator, other persons, or the public," and including water used by the state in its leasing program and water used to maintain certain fisheries); IDAHO CODE [subsection] 42-101 (1990) (proclaiming that apportionment, diversion, and allotment of Idaho waters must be for a "beneficial purpose"). (62) Oil shale development around Rifle, Colorado would have necessitated interbasin transfers of ground and surface water. For example, in 1972, the Montana Department of Natural Resources and Conservation received many large industrial applications to appropriate water for coal development in the Yellowstone Basin. At the same time, energy companies took options on 500,000 acre feet of stored water in the Bighorn River. The legislature feared, some say correctly, that the appropriations would have dried by the Yellowstone River and endangered water supplies for cities and farms downstream. Montana Dep't Of Natural Resources, Yellowstone River Basin: Final Environmental Impact Statement For Water Reservations 5-6

(1977). (63) 458 U.S. 941, 960 (1982) (Nebraska statute prohibiting export of ground water held to violate the Commerce Clause of the U.S. Constitution).

(64) Idaho set a policy of maximum beneficial use within the state. IDAHO CODE [subsection]42-101 (1990). Montana specifically attempts to confer maximum benefit on Montana citizens and curb out-of-state transfers. Mont. Code Ann. 85-1-101(2), (10) (1995).

(65) U.S. CONST. art. I, [subsection] 8, cl. 3 (giving Congress power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes").

(66) "Nothing in the purposes animating the Commerce Clause prohibits a State, in the absence of congressional action, from participating in the market and exercising the right to favor is own citizens over others." Hughes v. Alexander Scrap Corp., 426 U.S. 794, 810

(1976); see also Reeves, Inc. v. Stake, 447 U.S. 429 (1980) (upholding South Dakota's statute authorizing state-owned cement plant to sell only to state residents); South-Central Timber Dev. v. Wunnicke, 467 U.S. 82 (1984)

(suggesting that as long as Alaska did not attempt to restrict the post-purchase behavior of the buyers, it might choose the purchaser with whom it would deal).

(67) IDAHO CODE [subsection] 42-1736B (1993) (Compiler's notes include quotations from a 1978 Idaho House Concurrent Resolution calling for amendments to Idaho's water laws that would create a water supply bank.)

(68) Idaho Admin. R. 37.02.03 (1994). Shoshone-Bannock Tribes water bank rules appear at Idaho Admin. R. 37.02.04 (1994). For a more in-depth discussion of Idaho's water banks, see Lawrence J. MacDonnell Et Al., Using Water Banks To Promote More Flexible Water Use (1994)

(69) Idaho Code [subsection] 42-1762(2) (1990).

(70) Id.

(71) Idaho Admin. R.37.02.03.025.01 (1994).

(72) Idaho Code [subsection] 42-1763 (1990 & Supp. 1995) (An application may be rejected, partially rejected, or conditioned when "the proposed use is such that it will reduce the quantity of water available under other existing water rights, the water supply involved is insufficient for the purpose for which it is sought, the rental would cause the use of water to be enlarged beyond that authorized under the water right to be rented, or it will conflict with the local public interest.").

(73) Idaho Code [subsection](supp. 1995) (expired Jan. 1, 1996). Under the temporary rules, the Director was not required to make the usual determinations regarding the rentals. Local committees could approve the rentals, but specific criteria were not given. The Board could rent reservoir water if the rental was part of a regionally coordinated effort to assist in salmon migration and other parties were assisting proportionally in the effort.

(74) John E. Thorson, Water Marketing in Big Sky Country: An Interim Assessment, 29 Nat. Resources J. 479, 480 (1989).

(75) An acre foot is that quantity of water that covers an acre to a depth of one foot, displaces 43,560 cubic feet, 325,851 gallons, or inundates a hectare to a depth of 123.5 cm. Cubic feet per second is a measure of instantaneous flow through a plane. One cfs is 0.028 cubic meters per second

(cms). One cfs, if stored, would accumulate one acre foot in approximately twelve hours. Thousands of acre feet and cfs are abbreviated as Kaf and Kcfs, respectively.

(76) Mont. Code Ann. [subsection] 85-2-141(5) (1995).

(77) Id.

(78) The fund is part of a temporary leasing study that expires in 1998. MONT. CODE ANN. [subsection] 85-2436 (1995).

(79) Id. [subsection] 87-1-610.

(80) Id. [subsection] 85-2436(2)(a).

(81) Id. [subsection] 85-2437(3). The Board has approved seven reaches to date. The 1995 reorganization of the Department of Natural Resources did away with the Board and failed to delegate its approval authority. This removes one small hurdle to the Trust Fund. Telephone Interview with Liter Spence, Water Resources Supervisor, Montana Department of Fish, Wildlife, and Parks

(May 8, 1995). (82) Mont. Code Ann. [subsection]85-2436(2)(b) (1995).

(83) H.B. 472, 54th Leg. 1 (1995) (codefied as amended at Mont. Code Ann. [subsection] 85-2-402(2)(d) (1995))

(84) See id.

(85) Mont. Code Ann. [subsection] 85-2408(3)(a) (1995).

(86) Id. [subsection] 85 2402(2)(a)

(87) Id. [subsection] 85-2408(5)

(88) Id. [subsection] 85-2409

(89) WAsH. REV. CODE [subsection] 90.42 (1994).

(90) Id. [subsection] 90.42.010(2).

(91) Id. [subsection] 90.38. In late 1992, the Environmental Defense Fund

(EDF) developed information and procedures for an instream leasing program. Environmental Defense Fund, Restoring The Yakima River's Environment (1994) [hereinafter EDF Yakima Study]. The comprehensive planning document is a model of state and federal agency, tribal, private, and state adjudication court cooperation. EDF's study has valuable information on soliciting water, pricing, and lease structure. Id. at 27. The study also has insights into the complexity of leasing in Bureau of Reclamation project areas. Id. passim.

(92) Wash. Rev. Code [subsection] 90.42.010(1) (1994).

(93) Id. [subsection] 90.42.080(4). This provision indicates that water acquired through any means except funding of conservation projects must go through the transfer process to become trust water rights. Water derived from conservation projects can be leased without the usual notice and opportunity to protest found in the transfer statute. Id. [sections] 90.03.380, 90.42.040.

(94) Washington Dep't Of Ecology, Pub. NO. 94-02, Report To The Legislature, Trust Water Rights Program (1993).

(95) Wash. Rev. Code [subsection] 90.42.080 (1994).

(96) OR. REV. STAT. [subsection] 537.348(1) (1995).

(97) Id. [subsection] 537.348(1).

(98) OR. ADMIN. R. 690-77-077(1) (1995).

(99) OR. REV. STAT. [subsection] 537.348(2) (1995).

(100) OR. ADMIN. R. 690-77-077 (1995). For short-term leases, Oregon specifically confers standing upon a lessee to enforce the instream right. OR. ADMIN. R. 690-77-077(17) (1995).

(101) Until recently, only the Montana Department of Fish, Wildlife, and Parks could lease water for instream flow. Mont. Code Ann. [subsection] 87-1-610 (1995). Now, any person, corporation, or agency may hold a lease for instream flow. H.B. 472, 54th Leg. (1995)

(codified as amended at Mont. Code Ann. [subsection] 85-2402(2)(d) (1995)).

(102) See, e.g., Potter, supra note 12, at 427-34.

(103) Memorandum from Steve Reynolds, New Mexico State Engineer (Feb. 7, 1977) (on file with author) (regarding H.B. 228, intended for use by the New Mexico state legislature).

(104) Brian E. Gray, A Reconsideration of Instream Appropriative Water Rights in California, in Instream Flow Protection In The West 11-1, 11-23

(Lawrence J. MacDonnell & Teresa Rice eds., 1993) [hereinafter Instream Flow Protection]; see also Potter, supra note 12, at 419.

(105) See Potter, supra note 12, at 419.

(106) 1995 Mont. Laws 322 (amending Mont. Code Ann. [sections] 85-2-402, 85-2-407 (1995)). The program expires in 2005. Id. [subsection] 6.

(107) Id.

(108) Although the words are often used interchangeably, forfeiture and waiver are different from abandonment. Abandonment requires an intent to abandon on the part of the water user. Forfeiture and waiver are automatic. See CLARK, supra note 6, [subsection] 17.03(b). The period of nonuse resulting in loss of water rights is five years in all of the Pacific Northwest states except Montana, which has a ten-year nonuse provision. Idaho Code [subsection] 42-222(2) (1990); Mont. Code Ann. [subsection] 85-2-404(2)

(1995); OR. REV. STAT. [subsection] 540.610(2) (1995); Wash. Rev. Code [subsection] 90.14.140(1) (1994). (109) Wash. Rev. Code [subsection] 90.03.390 (1994); Mont. Code Ann. [subsection] 85-2-407 (1995); OR. ADMIN. R. 690-77-070(o) (1995); Idaho Code [subsection] 42-108 (1990). (110) Mont. Code Ann. [subsection] 85-2-407 (1995); IDAHO CODE [subsection] 42-108 (1990).

(111) Telephone Interview with Cynthia Nelson, Washington Department of Ecology (Apr. 9, 1995). (112) Oregon statutes are silent on private water transactions, but private ownership of an instream right is not likely to be a,lowed. See OR. REV. STAT. [subsection] 537.341 (1995). Oregon promulgated thorough rules for state oversight of temporary leases. OR. Admin. R. 690-77-077 (1994). (113) See generally George Gould, Recent Developments in the Transfer of Water Rights, in Water Daw, supra note 44, at 93; George Gould, Transfer of Water Rights, 29 Nat. Resources J. 457 (1989).

(114) GETCHES, supra note 1, at 163-65 ("[A] junior appropriator may do nothing to impair a senior appropriator's prior rights to water .... The doctrine of prior appropriation recognizes a right of junior appropriators' in the continuation of stream conditions as they existed at the time of their respective appropriations ...."' (quoting Farmers Highline Canal & Reservoir Co. v. City of Golden, 272 P.2d 629, 631 (solo. 1954))).

(115) For a more detailed analysis of the no-injury rule and instream flow, see Christopher H. Meyer, Instream Flows: Integrating New Uses and New Players into the Prior Appropriation System, in Instream Flow-Protection, supra note 104, at 2-1.

(116) One potential lessee related a tale of agency evasiveness on this topic. The agency is in charge of making the no-injury decision for transfers, but could not give the inquirer any solid guidelines for the determination or a sense of what evidence they would find compelling. Other states have very thorough and explicit guidelines. See, e.g., OR. ADMIN. R. ch. 690, div. 77 (1995) (Instream Water Rights).

(117) See infra app. A.

(118) Idaho Code [sections] 42-222, 42-203A(5) (1990 & Supp. 1995); Idaho Admin. R. 37.02.03.030.01 (1994); Mont. Code Ann. [subsection] 85-2-402

(1995); OR. ADMIN. R. 690-77-036 to 69077-042 (1995); Wash. Rev. Code [subsection] 90.03.380 (1994) (providing very general guidance).

(119) E.g., Idaho Code [subsection] 42-222(2) (1990 & Supp. 1995); Mont. Code Ann. [sections] 85 2-301 to 852-308 (1995).

(120) Idaho Code [subsection] 42-222(3) (1993 & Supp. 1995).

(121) OR. ADMIN. R. 690-77-070, 690-77-075 (1995). Final agency actions of OWRC can in turn be appealed to the court of appeals. OR. REV. STAT. [sections] 183.480, 183.482 (1995).

(122)OR. ADMIN. R. 6 90-77-034 (1995)

(123) Washington applicants did have the right to appeal Ecology decisions to Superior Court, but WASH. REV. CODE [subsection]90.03.080 (1987) was repealed by 1987 Wash. Laws, ch. 109, [subsection]159. Appeal is now routed through the Pollution Control Hearings Board, Wash. Admin. Code [subsection]173-04-010 (1995), and eventually may reach the Superior Court, id. [subsection]371-08-220. (124) Mont. Code Ann. [subsection]85-2-309 (1995).

(125) See Richard Wahl, Markets For Federal Water (1989); Lawrence J. MacDonnell Et Al., Facilitating Voluntary Transfers Of Bureau Of Reclamation-Supplied Water 8 (1991) (Natural Resources Law Center Research Report); Mecham & Simon, supra note 30, at 510 (pricing scheme for federal water is complex and subject to considerable administrative discretion).

(126) Memorandum from James Ziglar, Assistant Secretary for Water and Science, Bureau of Reclamation Commissioner, to Regional Directors (Dec. 16, 1989) (on file with author) (regarding voluntary water transfers); see also Mecham & Simon, supra note 30, at 554-57 (federal water prices should reflect opportunity costs).

(127) Memorandum from James Ziglar, supra note 126

(Voluntary Water Transaction Principle 2).

(128) Id. (Voluntary Water Transaction Principle 6).

(129) Id. (Voluntary Water Transaction Principles 1, 4).

(130) Roos-Collins, supra note 31, at 795. 131 Id. at 874.

(132) Id. at 875-76.

(133) Endangered Species Act of 1973, 16 U.S.C. [sections]1531-1544 (1994).

(134) Flow regimes are set out in recovery plans for flow-dependent species. In the Pacific Northwest, BPA flow leases for 1995 may be obviated by the National Marine Fisheries Service's mandated flow conditions on the Snake and Columbia mainstems. Telephone Interview with Dan Daley, Fisheries Biologist, Bonneville Power Administration (May 4, 1995).

(135) National Environmental Policy Act of 1969, 42 U.S.C. [sections]4321-4370d (1994).

(136) Id. [subsection]4332(C). In the Columbia Basin, BPA leasing efforts are covered under other Environmental Impact Statements. Negotiations for purchase of water rights have included all of the scoping and public comment elements indigenous to NEPA to conform to its principles. Telephone Interview with Dan Daley, supra note 134.

(137) Westlands Water Dist. v. United States Dep't of the Interior, 43 F.3d 457 (1994). Eight hundred thousand acre feet were set aside from existing projects for fish and wildlife uses by the Central Valley Project Improvement Act of 1992 (CVPIA), Pub. L. No. 102-575, 106 Stat. 4706 (1992). Irrigators in California's Central Valley sued under NEPA, alleging that impacts on the human environment had not been fully considered. Westlands Water Dist., 43 F.3d at 462. The court held that where the CVPIA and NEPA have an irreconcilable conflict, the time-mandated fish and wildlife measures should take precedence. Id at 462. The court also remarked that the "[w]ater districts have shown neither a likelihood of success nor the existence of a serious question on the merits." Id. (138) Roos-Collins, supra note 31, at 795-96. (139) Hydrosphere Resource Consultants, Water Supplies To Promote Juvenile Anadromous Fish Migration In The Snake River Basin, Report To The National Marine Fisheries Services 3-9 to 3-10 (1991).

(140) District members often pay reduced rates for water based on their ability to pay. Section 208 of the Reclamation Reform Act of 1982, Pub. L. 97-293, tit. 2, 96 Stat. 1261, 1267 (1982) (codified at 43 U.S.C. [SUBSECTION] 390hh (1988)), requires new contracts to pay the full proportional share of operation and maintenance costs. Mecham & Simon, supra note 30, at 510. (141) Victor Brajer et al, The Strengths and Weaknesses of Water Markets as They Affect Water Scarcity and Sovereignty Interests in the West, 29 Nat. Resources J. 489, 492-95 (1989)

(142) Helen Ingram & Cy R. Oggins, Natural Resources Law Ctr., Water, The Community, And Markets in The West 2 (1990).

(143) Brajer et al., supra note 141, at 507.

(144) Id. at 508-09

(145) Ingram & Oggins, supra note 142, at 1. For an analysis Of Oregon's market, see Clay Landry, Estimating Water Values: Procedures and Applications, Report to the Oregon Water Trust (Oct. 31, 1994) (on file with author). (146) Ingram & Oggins, supra note 142, at 10.

(147) Id. at 6.

(148) Id.

(149) Examples of local resistance are legion. The Idaho Nature Conservancy worked for two years with the North Fork Irrigation District to secure winter flows from storage in the Upper Henry's Fork. For undisclosed reasons, the North Fork Reservoir Co. rejected the Nature Conservancy's proposal to trade winter flows for water bank water. Telephone Interview with Lou Lunte, Land Steward, Idaho Nature Conservancy (May 5, 1995).

The first attempted lease in the Montana Trust Water Rights system failed, at least in part, due to local pressure on the lessor. Telephone Interview with Bob Lane, Chief Counsel, Montana Department of Fish, Wildlife, and Parks

(May 4, 1995). (150) Telephone Interview with Liter Spence, supra note 81. Being first also affects price. Lessees may be anxious to get a foothold in a watershed and local pressure on lessors may increase the asking price.

(151) Terry L. Anderson & Donald R. Leal, Going with the Flow: Marketing Instream Flows and Groundwater, 13 Colum. J. Envtl. L. 317, 321 (1988)

("Reliance on [the public trust] doctrine has prevented markets for instream flows from evolving and has ensured that even markets for diversions will be clouded by the uncertainty of private tenure inherent in this doctrine.").

(152) The public trust doctrine imposes a duty on the state as a trustee of all public natural resources. William Goldfarb, Water Law 114 (1988); see also National Audubon Soc'y v. Superior Court of Alpine County, 658 P.2d 709, 719-24 (Cal.), cert. denied, 464 U.S. 977 (1983) (holding that, under the public trust doctrine, the State of California has a duty to protect the public's "common heritage" in the state's waters and may surrender that right "only in rare cases when the abandonment of that right is consistent with the purposes of the trust"). (153) Anderson & Leal, supra note 151, at 321.

(154) Federal Water Pollution Control Act (Clean Water Act), 33 U.S.C. [SECTIONS] 1251-1387 (1994). (155) Endangered Species Act of 1973, 16 U.S.C. [SECTIONS] 1531-1544 (1994). (156) Bonnie Colby, Benefits, Costs and Water Acquisition Strategies: Economic Considerations in Instream Flow Protection, in Instream Flow Protection, supra note 104, at 6-14 to 6-15. (157) Id. at 6-15.

(158) Telephone Interview with Bob Lane, Chief Counsel, Montana Department of Fish, Wildlife, and Parks (Apr. 25, 1994). Community pressure on the lessor, the first in Montana's program, contributed to the price spread.

(159) For a complete summary of economic methods for measuring the value of water in consumptive uses, see Bonnie Colby, Alternative Approaches to Valuing Water Rights, 57 Appraisal J. 180, 180-196 (1989). For a treatment more specific to instream leasing, see Landry, supra note 145; see also EDF Yakima Study, supra note 91, at 27-42.

(160) EDF Yakima Study supra note 91, at 35.

(161) Colby, supra note 156, at 6-13.

(162) Ray Huffaker et al., Institutional Feasibility of Contingent Water Marketing to Increase Migratory Flows for Salmon on the Upper Snake River, 33 Nat. Resources J. 671, 681 (1993). (163) Landry, supra note 145.

(164) Department Of Water Resources, Water Rental Pool Annual Report, Payette River (1993).

(165) Telephone Interview with Wayne Haas, Idaho Department of Water Resources (Mar. 10, 1995). The Bureau took back almost 36 Kaf of its water to repay Idaho Power for part of their spring and early summer releases, nearly exhausting the supply in the Boise Water Bank. If a drought had persisted through the winter, there would have been no water for migration and the ESA would have divested irrigators of water for fish. Roger Vaughan & Rodney Smith, Transaction Update, Water Strategies, Jan. 1995, at 14. (166) Department Of Water Resources, Water Rental Pool Annual Report, Upper Snake River (1993). This was the rate for uses below Milner Dam. Two dollars per acre foot returns to the lessee if the storage space rented refills the following year. Telephone Interview with Wayne Haas, supra note 165. (167) Telephone Interview with Bob Lane, supra note 149. (168) Id.

(169) The lessor accepted $7500 for a right worth $10,000. Telephone Interview with Liter Spence, supra note 81.

(170) Wash. Rev. Code [SUBSECTION] 90.38 (1994)

(171) EDF Yakima Study supra note 91, at 33-41. The study states several caveats in its analysis that apply generally to any attempt to estimate market prices for water, including the rental price paid for irrigated land, the use of water for irrigated forage crops, the higher price of forage crops in dry years, and estimates of farm profitability. Id. at 34 35. (172) Landry, supra note 145, at 55-57 (173) The majority of Oregon Water Trust

(OWT) leases are charitable in nature, with a typical consideration of one dollar. In OWT's first lease, the price paid for Buck Hollow water included significant public relations and community acceptance value. OWT also gained experience in lease and transfer processes that justified this price. Telephone Interview with Andrew Purkey, Executive Director, Oregon Water Trust (May 8, 1995). (174) Telephone Interview with Dan Daley, supra note 29. Prices in this lease were generated on the basis of hydropower value, even though the goal was anadromous fish. The value of the fish flows was not quantified, but this lease provides some basis for valuing that end. (175) Vaughan & Smith, supra note 36, at 19. (176) Id. at 16.

(177) Robert Wigington, Natural Resources Law Ctr., Market Strategies For The Protection Of Western Instream Flows And Wetlands 16 (1990).

(178) See infra app. B.

(179) John Duffield Et Al., Market Value Of Agricultural Water Leased For Instream Flows, Report To The Montana Department Of Fish, Wildlife And Parks 107, 126 (1991). (180) For a list of typical features and clauses, and Idaho and Oregon lease forms, see infra app. B. (181) For a sample of lease types in current use, see infra app. C (182) Montana Department of Fish, Wildlife, and Parks anticipates that transfer proceedings will be slow and often initiates them before leases are final or even before negotiations are finished. In one complex, multiple-party lease, state approval was final long before all parties had agreed to the lease. Telephone Interview with Liter Spence, supra note 81. (183) Oregon Department of Fish and Wildlife had been conducting a survey of tributaries to prioritize watersheds based on threatened fisheries. When the contract expired, Oregon Water Trust hired the same consultant to continue the work and shared the information with the state agency. (184) Telephone Interview with Dan Daley, supra note 134.

(185) Telephone Interview with Liter Spence, supra note 81.

(186) Oregon Water Trust (OWT) will soon have an impressive array of computer and satellite imagery equipment donated by the Conservation Technology Support Project, a consortium of public and industry leaders. OWT's technical expertise equals some state agencies. To complement their able scientific staff, OWT has hired two representatives who live and work in rural watersheds. This not only builds credibility and trust, but also provides an important conduit for market information. (187) EDF Yakima Study, supra note 91, at 43-55. (188) One experienced negotiator, who prefers to remain anonymous, suggested that simple money-for-water deals tend to inflate the price of leases. This negotiator suggested that more complex deals involving land, in-kind payments, options, and other parties tend to shift attention from dollar-per-acre-foot discussions and put water prices in the larger context of the entire deal. (189) Telephone Interview with Bob Lane, supra note 149. (190) Id. This particular rancher was willing to donate his unused water to the state program, but the lease arrangement required some consideration. Montana Department of Fish, Wildlife, and Parks was prepared to pay a higher price for water in that reach. (191) See Carpenter, supra note 7, at 1-3. (192) The Malheur River Basin leases negotiated with Bonneville Power Administration are valued by their contribution to hydropower, and they have a 30-year amortization schedule. The deal is sufficiently complex that the true price is masked, even though the information is public. Telephone Interview with Dan Daley, supra note 134.

(193) Montana's Trust Water Right program recently helped finance a pipeline project in return for a lease of the conserved water.

(194) In Oregon Water Trust's Buck Hollow lease arrangement, the lessor's desire to rejuvenate native steelhead runs was a key to success. Lessors on Sucker Creek were strongly motivated by environmental concerns. Telephone Interview with Andrew Purkey, supra note 9. (195) Bonneville Power Administration has encountered resistance to its leasing and purchasing effort because it is a federal entity. BPA has discussed the possibility of having the Environmental Defense Fund, Oregon Water Trust, and others negotiate leases and purchases, manage blocks of funding, and act as trustee of instream rights. (196) Telephone Interview with Bob Lane, supra note 149.

(197) In Montana, field biologists who work in the area are often the ones who make initial contact and negotiate leases. Id. Oregon Water Trust has field representatives that are also ranchers and farmers in the local community. Telephone Interview with Andrew Purkey, supra note 9. Lou Lunte, land steward for the Idaho Nature Conservancy, raises cattle and irrigates their land, which contributes to their acceptance and credibility. Telephone Interview with Lou Lunte, Land Steward, Idaho Nature Conservancy (May 4, 1995).

(198) See Carpenter, supra note 7; James D. Crammond, Screening Water Diversions: A Survey of Policy, Practices, and Compliance in the Pacific Northwest, 2 Animal L. (forthcoming 1996). Frustration over lax enforcement found outlet in a hoax. A fraudulent news release dated April 18, 1995, and printed on outdated Oregon Department of Water Resources (ODWR) stationery announced that ODWR would fine diverters in the Grande Ronde watershed $1000 a day beginning June 1, 1995 for any noncompliant diversion. Any diversion out of compliance on July 1, 1995 would have its underlying water right converted to instream flow. The letter produced a swarm of angry calls to Salem. Oregon State Police are investigating.

(199) Attributed to John Thorson, Special Master, Arizona General Stream Adjudication, Phoenix, Arizona.

(200) See Oregon Water Resources Dep't et al., Short-Term Water Right Lease Agreement for Leases of Existing Water Rights for Instream Use (1995); EDF Yakima Study, supra note 91, at 57-63; Brajer et al., supra note 141, at 495-96; Duffield et al., supra note 179, at 108-32.

(201) See Steven J. Shupe et al., Western Water Rights: The Era of Reallocation, 29 Nat. Resources J. 413 (1989); EDF Yakima Study, supra note 92, at 29-31; Duffield et al., supra note 179, at 109-12.

(202) Duffield et Aal, supra note 179, at 111. 203 This strategy is a cornerstone of Washington's trust water rights program. Wash. Rev. Code [subsections]90.42.030 (1994). Oregon allows individuals to capture up to 75 percent of water from conservation efforts and apply it to new uses with the original priority date. Or. Rev. Stat. [subsection] 537.470(3) (1995). The legislature is contemplating a change in this statute to fix the instream dedication to the percentage of government assistance. Montana allows appropriators to retain salvaged water for use on site and limits transfers to instream use to the state instream flow program. Mont. Code Ann. [subsections]85-2-419 (1995). Conserved or salvaged water in Idaho returns to the public domain and becomes appropriable. Idaho Code [subsections]42-104 (1993).

James D. Crammond, B.S. 1990, University of Arizona (Hydrology); J.D. 1993, Arizona College of Law. James D. (Dar) Crammond is an attorney-hydrologist with Volcano Lake Consulting based in Portland, Oregon. This Article was originally presented on May 20, 1995 at the Conference on Water Policy and Sustainability in the Columbia River Basin, sponsored by the Northwest Water Law & Policy Project of Northwestern School of Law of Lewis & Clark College.