Statement of Basis and Purpose

Rules Governing the Arkansas River Water Bank Program

The statutory authority for these rules is specifically found in section 37-80.5-104.5, C.R.S.  Under this authority, upon request by a water conservancy district, the state engineer shall promulgate rules necessary or convenient  for the operation of the program.  The Upper Arkansas Water Conservancy District has requested the State Engineer to promulgate these rules.

The purpose of these rules is to establish parameters through which a water banking mechanism can be established within the Arkansas River basin that will simplify and allow the approval of water leases, loans, and exchanges, including interruptible supply agreements, of stored water while reducing the costs associated with such transactions.  In addition, the purpose of these rules is to assist farmers and ranchers in obtaining value for their water rights without forcing the permanent sale of those water rights from the land.  These rules also delegate administration of the bank to the Upper Arkansas Water Conservancy District.

These rules are not intended to modify or restrict the ability of the holder of a water right to sell, lease or exchange water rights in any other manner that is currently permitted under Colorado law and are not intended to be implemented in any way that would cause material injury to the owner of or persons entitled to use water under a vested water right or a decreed conditional water right.  Further, these rules are not intended to permit any expansion of use of stored water deposited into and leased, loaned, optioned or exchanged through the water bank. It is also not the intent of these rules to in any manner amend the existing water rights adjudication system except to allow for leases, loans, and exchanges effectuated through the water bank, which section 37-80.5-104.5(1)(a)(III). C.R.S. expressly exempts from the water court adjudication requirements of Article 92, Title 37, C.R.S.

These rules provide guidance on the structure of the water bank, limitations on water bank usage, procedures for placing water in the bank, transactional procedures within the bank, bidding, listing, and notice and comment procedures, and quantification procedures for water rights placed in the bank, including acceptable consumptive use factors.  These rules also set parameters for delivering water from the bank, reporting requirements and time limitations for the water bank.
 
Rule 12.1 – Title

Rule 12.1 is self-explanatory.

Rule 12.2 – Scope and Purpose

Rule 12.2 sets forth the scope and purpose of the Rules Governing the Arkansas River Water Banking Program, establishes that only stored water in the Arkansas Basin can be used in the water bank, and does not permit an expansion of use of water deposited into the bank.

Rule 12.3 – Definitions

Rule 12.3.A.1 defines “bankable water” to mean legally stored water meeting the criteria of the rules, as opposed to direct flow water rights.  Direct flow water rights are not bankable under these rules or the law.

Rule 12.3.A.2 defines “Article II water” to assist in understanding the potential use of “winter stored water” in the water bank.

Rule 12.3.A.3 and 3.A.4 are self-explanatory while Rule 12.3.A.5 defines “interruptible supply” as required by the authorizing legislation.  Rule 12.3.A.6 is self-explanatory.  

Rule 12.3.A.7 defines an “option agreement”. Option agreements may be used extensively in the water bank and assist in realizing the General Assembly’s goal of providing a means for water to remain in agricultural type uses within the basin, while temporarily allowing other uses at times when the option is exercised.  Rules 12.3.A.8, 12.3.A.9 and 12.3.A.10 are self-explanatory. 

Rule 12.3.A.11 defines “water banking” to set forth the general parameters of what water banking means within the terms of H.B. 1354.  

Rule 12.3.A.12 is self-explanatory.

Rule 12.3.A.13 defines who may be a “water bank operator” under the authorizing legislation for administration of the water bank.  Rule 4 delegates administration to the Upper Arkansas Water Conservancy District.

Rule 12.3.A.14 defines “winter water” to assist those water users who may utilize this specific type of water in the water bank program.

Rule 12.3.B is self-explanatory.  Rule12.3.C clarifies that the general terms of “buyer and seller” can encompass lessors and lessees and other types of parties who have transactions in the water bank.  Rule 12.3.D is self-explanatory.

Rule 12.4 – Delegation of Administration of the Water Bank.

The purpose of Rule 12.4 is to delegate the administration of the water bank to the Upper Arkansas Water Conservancy District.

Rule 12.4.A allows the Upper Arkansas Water Conservancy District pursuant to section 37-80.5-104.5(1)(d), C.R.S. to administer the water bank outside of the districts geographic boundaries.  

Rule 12.4.B explains that the Upper Arkansas Water Conservancy District may charge fees for deposits and withdrawals to the bank to cover its administrative costs as set forth in section 37-80.5-104.5(1)(d), C.R.S.  

Rule 12.5 – Limitations on the Water Bank

Rule 12.5 sets forth the limitations on where water can be used, exchanged, leased, loaned and/or optioned.  Further, it clarifies the types of water that can be used and the legal parameters under which the water can be used. The limitations set forth in this rule are addressed in sections 37-80.5-102 and 37-80.5-104.5, C.R.S.

Rule 12.5.A is self-explanatory.

Rule 12.5.B echoes the limitation set forth in section 37-80.5-104.5(1)(a)(I), C.R.S. to ensure compliance with the Arkansas River Compact.  The purpose of Rule 12.4.C  is to ensure compliance with existing law concerning instream flow water rights and the enabling legislation for these rules.  Rule 12.5.D  is self-explanatory.

Rule 12.5.E sets forth the time frame that “winter water” stored in Pueblo Reservoir can be banked.  The purpose of this rule is to help ensure that entities entitled to use “winter water” pursuant to the provisions of Case No. 84CW179, Water Division No. 2, cannot circumvent the terms and conditions of that decree by depositing unused “winter water” in the water bank to prevent the release of such water that would make it available to other appropriators.

Rule 12.5.F clarifies that only Article II “winter stored water” can be used in the bank and that “summer stored water” may be not be used.  Rule 12.5.G clarifies state and federal requirements, including contractual requirements that must be adhered to in connection with the use of federal projects (e. g. Pueblo Reservoir).  Further, the rule ensures that the water bank cannot operate in a manner that will compromise or harm the purposes of the Fryingpan-Arkansas Project Act.

Rule 12.5.H ensures protection of existing water rights and compliance with applicable compacts, while allowing for temporary use of water through the water bank without formal adjudication, as permitted by section 37-80.5-104.5(1)(a)(III), C.R.S.  Further, Rule 12.5.H states that water used in the bank must return to its historic use after the terms of the transaction and utilization of the resource through the water bank are completed.  The purpose of this portion of the rule is to emphasize that water cannot be permanently changed.  Rule 12.5.I is self-explanatory.

Rule 12.5.J limits the bank based on storage space and water supply.  Rule 12.5.J also states that leases, loans, options or exchanges of water through the bank may exceed one year terms as long as there are sufficient terms and conditions in place for administration.  

Rule 12.5.K makes it clear that no lease, exchange, etc. within the bank may be for a term longer than the enabling legislation limitations.

Rule 12.6 – Procedures for Placing Water into the Water Bank

Rule 12.6 sets forth the application procedures that a water user must comply with to deposit water in the water bank. The information required under this rule assists in proper analyses and determinations as to whether the water is eligible to be deposited in the bank.  Payment of fees assists in defraying administrative costs in bank operations.

Rules 12.6.A.1 and 2 ensure that proper permission has been obtained from reservoir owners and that contracting, if required, is completed prior to deposit in the water bank. 

Rules 12.6.A.3 through 5 are self-explanatory.

Rule 12.6.A.6 requires information concerning historic use of irrigation storage rights and plans for future use and irrigation of the land where the water was historically used.  This information is required to ensure no expansion of historic consumptive use of the water.

Rule 12.6.A.7 requires a historic consumptive use analysis to be submitted with the application to determine historic consumptive use of the water right, and establishes minimum qualifications as to who can prepare such an analysis.  However, this is only required if the applicant chooses to use consumptive use values different than those provided in Rule 12.10 (acceptable historic consumptive use values) or if the water to be placed in the bank is not from a source listed in Rule 12.10.  Rules 12.6.A.8 through 11 and Rule 12.6.B are self-explanatory.

Rule 12.6.C directs the water bank operator to determine a suggested minimum price for banked water.

Rule 12.6.D sets forth minimum terms that must be included in an acceptable “deposit agreement” between the water bank and the depositor.  The agreement by the applicant that the bank has exclusive rights to market the water on behalf of the depositor is required so a depositor does not use the bank’s listing services and then consummate a transaction outside of the water bank to avoid administrative costs associated with operating and maintaining the bank’s services.  The rule, as required by the enabling legislation, allows for the depositor to withdraw water from the bank at any time for personal use or permanent sale prior to an actual water bank transaction; however, the rule allows penalties for withdrawal. 

Rule 12.7 – Listing and Bidding Process

Rule 12.7 details marketing and bidding procedures for water deposited in the bank, and the establishment of a notification list for proposed water bank transactions.  Within this rule, Rules 12.7.A ,B, and C are self-explanatory.

The purpose of Rule 12.7.D is to ensure that bidders are legitimate and have the resources (money) to consummate a transaction through the bank, and to make it difficult for frivolous bidders with no legitimate interest in the water bank to affect the water bank market.

Rule 12.7.E directs the water bank operator to establish a Water Bank Notification List for purposes of notifying interested parties of proposed water bank transactions.

Rule 12.8 – Transactional Procedures

The purpose of Rule 12.8 is to set forth procedures for the water bank operator and the State/Division Engineers to follow after an agreement between a seller and buyer is negotiated by the water bank operator.  Rule 12.8.A requires the water bank operator to provide the State and Division Engineers with a signed agreement that provides the minimum information necessary for the State/Division Engineers to determine if agreement is feasible and whether the proposed use of the banked water will injure vested water rights.

Rules 12.8.B and 12.8.C set forth the notice and comment procedure for proposed water bank transactions.  Rule 12.8.D defines the time period by which the State/Division Engineers must review the proposal, consider any comments submitted, and impose any terms and conditions, including dry-up provisions, deemed necessary to ensure protection to vested water rights and to prevent expanded use of the water.  It also provides for use of administrative discretion, allowing additional fact finding to occur according to a specified procedure.  Rule 12.8.E is self-explanatory.

The purpose of Rule 12.8.F is to notify water bank participants that they must comply with state and local laws that pertain to the potential effects of a change in land use or irrigation practices.  

Rule 12.9 – Expedited Transaction Procedures for Certain Water Rights.

The purpose of Rule 12.9 is to provide for expedited review of water bank transactions with water decreed as fully consumable or reusable.

Rule 12.9.A details when this rule may apply.

Rule 12.9.B details requirements for notifying the State and Division Engineers of a transaction agreement.

Rule 9.C sets forth notification procedures.  

The purpose of Rule 12.9.D is to clarify that the State and Division Engineers will provide the buyer and seller with terms and conditions for implementing the agreement.

Rule 12.9.E explains the procedure for finalizing a transaction agreement under this rule.

Rule 12.10 – Quantification Procedures for Water to be Released from the Bank

The purpose of Rule 12.10 is to provide water users in the basin an efficient and economical means to use features of the water bank without going through the time and expense that a detailed historic consumptive use analysis of the water right to be temporarily changed involves.  Concurrently, the figures utilized in Rule 12.10 were developed in a conservative manner to guard against injury to vested water rights and comply with Arkansas River compact requirements.

The average farm efficiencies relied upon for the derivation of the acceptable factors included in Tables A and B were taken from the water budgets that resulted from use of the Hydrological Institutional (HI) Model. The HI Model was recognized as a reasonable method of determining depletions to usable Stateline flows for the period of 1986 through 1994 by the United States Supreme Court in the matter of Kansas v. Colorado, (No. 105, Original). The average transit loss values used herein were developed by Boyle Engineering for the State of Colorado in the course preparing its defense in the Kansas case, and were applied in order to make the values shown in Table A relate to units of stored water in Pueblo or John Martin Reservoirs.

Rule 12.10.C is included to clarify that waters associated with the Colorado Canal Reservoirs that have been quantified in the Water Court Case Nos. 84CW62-64 are not included in the acceptable values and will be quantified in terms of “net loss water.”  Rule 12.10.D is self-explanatory.

The intent of Rule 12.10.E.1 is to clarify that, following notification of completion of the transaction per Rule 12.8.E or Rule 12.9.E, the consumable portion shall be available for delivery for the buyer’s purposes, but subject to evaporation and transit loss assessments pursuant to Rules 12.11.C and D.

The rationale for Rules 12.10.E.2 and 3 is to ensure that the use of water through the water bank will not adversely affect the rights of other owners of the same type of water as that deposited. This will be accomplished by the release of the transit, canal and lateral loss components concurrently with the release of waters of the same type owned by others to maintain the delivery conditions to their point of use.

The purpose of Rule 12.10.E.4 is to clarify that transit loss and canal/lateral losses will be administered per Rule 12.10.E.5 and reflect historic return flow patterns when all water of a given type is deposited in the water bank.  Rule 12.10.E.5 recognizes that a portion of each unit of water applied to any use that is not consumptively used returns to a surface stream over a period of time and becomes available to other appropriators, and these appropriators are entitled to the maintenance of historic stream flow conditions.  The timing and location of such returns is a function of when the application of water to a use occurs, the distance from the point of application to the stream, and the intervening geohydrologic conditions. The objective of this Rule is to mimic the return flow response, to a practical extent, in accord with the manner in which the deposited water has been historically used.  For the purpose of this Rule, the historic pattern of use of various types of stored water anticipated to be deposited in the water bank were investigated.  The return flow response of each was then modeled using the Ground Water Accounting Model used by the Division 2 Engineer for similar purposes in connection with the administration of the Amended Rules and Regulations Governing the Diversion and Use of Tributary Ground Water in the Arkansas River Basin, Colorado.  Because this model carries out mathematical results for a period of time beyond what is administratively practical for this application, the monthly results have been condensed into a single twelve-month schedule.  It is anticipated that this type of schedule will be utilized to accomplish releases from the storage reservoir to the river for a twelve-month period starting from the completion of the transaction.

Rule 12.11 – Procedures for Delivering Water from Storage Facilities

Rule 12.11 addresses procedures for implementation of water bank transactions, such as notice to the Division Engineer, actual delivery of water from the water bank, and the development of a credit and debit accounting system for reservoirs used to store banked water.  

Rules 12.11.C, 12.11.D, and 12.11.E require the State Engineer to determine transit and evaporative losses and to evaluate and implement exchange operations as authorized by law.

Rule 12.12 – Reporting Requirements

The purpose of Rule 12.12 is to ensure that the public can access summaries of transactions within the water bank.  

Rule 12.13 – Water Bank Time Limitation

This rule is self-explanatory.

Rule 12.14 – Continuing Effect

This rule is self-explanatory.

Rule 12.15 – Effective Dates

This rule is self-explanatory.