Water rights issues in Montana are an intricate and sometimes complicated affair.  We've broken it out into three parts:

Prior Appropriation

Private Leasing Law

Abandonment

Prior Appropriation:

History:
The prior appropriation doctrine emerged out of California in the 1800’s after miners developed a water use system as an alternative to the riparian water system prevalent in England and the eastern United States. The prior appropriation doctrine emerged because it could adapt flexibly to the needs of miners, as it allowed diversion to a distant location and simply required use of the water for a beneficial purpose. Western states adopted the miners’ approach through both court decisions and codification, and the doctrine of prior appropriation became the law of the western states, including Montana.

The doctrine of prior appropriation in Montana and throughout the West operates under the philosophy "first in time, first in right." Under this doctrine, the first person to divert and use water from a stream acquires a senior right to the quantity of water used. Later claimants exercise their rights in descending order of priority and are referred to as junior users. In times of shortage, those users with the oldest water rights are entitled to take their full rights from the stream before those with younger rights. Oftentimes, not enough water is left instream to support fisheries.

Traditional elements of a valid appropriation under the prior appropriation doctrine are as follows:

* Intent: An appropriator must intend to use the water.
* Diversion: Except for an instream beneficial use, an appropriator must divert the water.
* Beneficial use: To perfect an appropriation, the water must be applied to a recognized beneficial use.
* Priority access: Once the water is put to a beneficial use, the water right receives a priority date.
* Definite quantity: The quantity of an appropriation right must be fixed and definite.

Beneficial Use:
The Montana Supreme Court has recently stated that beneficial use is the touchstone of the prior appropriation doctrine, and that prior to the enactment of the Montana Water Use Act in 1973, Montana explicitly recognized the use of water for fish, wildlife and recreation as beneficial uses. The Montana Water Use Act also recognizes non-consumptive and instream uses for fish, wildlife and recreation:

"Beneficial use", unless otherwise provided, means:

"(a) a use of water for the benefit of the appropriator, other persons, or the public, including but not limited to agricultural (including stock water), domestic, fish and wildlife, industrial, irrigation, mining, municipal, power, and recreational uses.” 85-2-102 (2)(a), MCA.

The prior appropriation doctrine in Montana, therefore, recognizes instream flow rights for fish, wildlife, and recreation. As such, water right holders in Montana can temporarily lease all or a portion of their consumptive water rights to the Coalition for instream use to benefit fish, wildlife, and recreation.

Private Leasing Law:

In 1995, a partnership of environmental and agriculture groups formed to pass legislation that allows individuals or private organizations to lease water rights for instream needs. (See MCA, § 85-2-408). This legislation enables the Coalition to lease water from willing water right holders for instream use to benefit fisheries. Leases may be entered into for a period of ten (10) years and can be renewed for an additional ten (10) years. Montana law currently does not permit the permanent transfer of water rights to the Coalition for instream use.

The Montana Water Use Act also allows water right holders who increase the efficiency of their water use to donate or lease all or part of the saved water for instream use. (See Montana Code Annotated, § 85-2-419). The lease may be entered into for a period equal to the expected life of the project, not to exceed 30 years. (See MCA § 85-2-407). And as discussed in the abandonment section above, water that is leased to the Coalition is not subject to abandonment.

Under the leasing law, the instream water right is assigned the priority date of the original water right. (See MCA § 85-2-407 (5)). As such, a senior instream water right is unavailable for use by junior water users in the protected stream reach (see enforcement section below for further discussion). And, because Montana only allows temporary transfers of water to an instream right, the water right holder maintains title to the leased water right.

Historical Use:

In basins that have not completed final adjudication, the DNRC will limit the amount of water a water right holder can lease to the Coalition to that which was historically diverted and applied to a beneficial use. If a water right holder has historically diverted the full amount of water for a beneficial use, then the water right holder can lease the entire right to the Coalition for instream use. However, if the amount of water historically diverted and applied to a beneficial use is less than that stated on the water right “statement of claim,” then a water right holder can only transfer to the Coalition that which was actually used in the past. Water right holders may also transfer a portion of their historically diverted water right to the Coalition.

Enforcement of the Instream Right:

The Coalition does not have standing under the Montana Water Use Act to enforce its leases against junior water users. MCA § 85-2-408(6) provides:

“Only the owner of the water right may seek enforcement of the temporary change authorization or object under 85-2-308.”

Depending on the circumstances of a particular lease, enforcement may not be an issue. In those cases where enforcement of the instream water right will be necessary to protect the right, the Coalition will enter an agreement with the water right holder specifying that the water right holder will enforce the instream water right if sufficient evidence indicates that a junior user is using the water in the protected stream reach for the lease. If the water right holder refuses to enforce the instream right, the Coalition will have the option to cancel the lease.

Enforcement is possible because, in Montana, water rights are treated as property rights. As with land, Montana law permits the free transfer of a water right to another. As such, a landowner could sell his land and the attached water right to another, and the new owner would have the right to consumptively use the entire water right. In this case, the water would be both legally and physically unavailable to junior users. A landowner could also transfer his water right to the Coalition for instream use. In this case, the Coalition’s property interest in the water would prevent its use by junior users. Although the water would be physically available to junior users, it would remain legally unavailable to them during the term of the lease.

Protected Stream Reach:

As discussed in the section above, if a water right holder (Lessor) leases water to the Coalition for instream use, the instream water right will be unavailable to junior users within a protected stream reach. In order to determine the protected reach, the Coalition will determine how far the instream right can be measured and protected without adversely affecting other water users. If the next downstream user has a right senior to that of the Lessor, the protected reach may only be from the Lessor’s point of diversion to the next diversion.
However, if the Coalition leases water from a senior water right holder who is located upstream from a junior user, the protected reach may be from the point of the Lessor’s diversion to the mouth of the affected stream. Within this reach, the instream water right will be legally unavailable to downstream junior users.

Abandonment:

Another rule within the prior appropriation doctrine relates to abandonment of water rights. The “use it or lose it rule” requires appropriators to use their entire water right or risk abandoning it. Once a water right is deemed by the state to be abandoned, the water is available for appropriation by other water users. This rule was intended to encourage reasonable water use and discourage speculation; however, it oftentimes encourages waste. Indeed, water right holders commonly use water even when it is not necessary, simply to ensure they do not lose it through abandonment.

With respect to abandonment, if the Department of Natural Resources and Conservation (DNRC) believes that an appropriator has abandoned a water right, the DNRC may initiate a court action to declare the right abandoned. Abandonment is the consequence of:

* Ceasing to appropriate all or a part of a right with the intention of abandonment;
* Ceasing to appropriate a right according to its terms or conditions; or
* Ceasing to appropriate all or part of a right for a period of ten years when water was available for use. MCA § 85-2-406.

If any of these conditions exist, the DNRC may petition the appropriate district court to declare the rights abandoned. The district court conducts a hearing and the department bears the burden of proving abandonment.

Since enactment of the private leasing law in 1995, water right holders can now transfer all or a portion of their water rights to the Coalition through a water lease and the amount left instream is protected against abandonment under Montana law. Indeed, MCA § 85-2-404(4) provides:

“The lease of an existing right pursuant to 85-2-436, the use of water pursuant to 85-2-439, or a temporary change pursuant to 85-2-407 does not constitute abandonment or serve as evidence that could be used to establish an abandonment of any part of the right.”

Thus, if water right holders are interested in preserving their water rights, but may not need to use the entire right each year (e.g., upgraded irrigation system conserves water) they can protect their entire water right by leasing the water to the Coalition for instream use to benefit fisheries. In over-appropriated streams, such a lease will ensure that the conserved water is not used by junior users, but will remain instream to benefit fisheries.