                            IN THE
          ARIZONA COURT OF APPEALS
                         DIVISION ONE


   ROBIN SILVER, M.D.; UNITED STATES OF AMERICA, U.S.
DEPARTMENT OF INTERIOR, BUREAU OF LAND MANAGEMENT;
       and PATRICIA GERRODETTE, Plaintiffs/Appellees,

                               v.


   PUEBLO DEL SOL WATER COMPANY, an Arizona corporation;
   THOMAS BUSCHATZKE, in his official capacity as Director of the
Arizona Department of Water Resources; ARIZONA DEPARTMENT OF
       WATER RESOURCES, an agency of the State of Arizona,
                       Defendants/Appellants.


                      No. 1 CA-CV 14-0811
                       FILED 11-8-2016


        Appeal from the Superior Court in Maricopa County
                     No. LC2013-000264-001
                           LC2013-000271-001
                           LC2013-000272-001
                          (Consolidated)

          The Honorable Crane McClennan, Judge, Retired

           VACATED; AGENCY ACTION REMANDED
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

                                COUNSEL

Earthjustice, Denver, Colorado
By Heidi J. McIntosh (pro hac vice), Cynthia Christine Tuell
Counsel for Plaintiff/Appellee Silver

U.S. Department of Justice Environment & Natural Resources Division,
Washington, D.C.
By John L. Smeltzer, R. Lee Leininger, Katherine J. Barton (pro hac vice)
Counsel for Plaintiff/Appellee United States of America et al.

Arizona Center for Law in the Public Interest, Phoenix
By Joy Herr-Cardillo, Timothy M. Hogan
And
By David McDevitt
Counsel for Plaintiff/Appellee Patricia Gerrodette

Law Office of William P. Sullivan, P.L.L.C., Phoenix
By William P. Sullivan
Counsel for Defendant/Appellant Pueblo

Arizona Department of Water Resources, Phoenix
By Kenneth C. Slowinski, Nicole D. Klobas, Janet L. Miller
Counsel for Defendant/Appellant ADWR et al.

Law Office of Bruce A. Burke, P.C., Tuscon
By Bruce A. Burke
Counsel for Amicus Curiae Leshy and Glennon

Law Offices of Jesse J. Richardson Jr., Morgantown, West Virginia
By Jesse Richardson, Jr. (pro hac vice)
And
Snell & Wilmer, L.L.P., Phoenix
By L. William Staudenmaier
Counsel for Amicus Curiae Water Systems Council

Fennemore Craig, P.C., Phoenix
By Sean T. Hood, Rhett A. Billingsley
Counsel for Amicus Curiae Freeport Minerals Corporation




                                     2
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court



                                 OPINION

Presiding Judge Jon W. Thompson delivered the opinion of the Court, in
which Judge Maurice Portley (Retired) and Judge Patricia K. Norris
joined.


T H O M P S O N, Presiding Judge:

¶1            This is an Adequate Water Supply Designation (AWSD or
Designation) case. We are asked to decide whether the superior court
erred by reversing the decision of the Arizona Department of Water
Resources (ADWR or Department) approving the application by Pueblo
Del Sol Water Company (Pueblo) to allow its development in Cochise
County to proceed. We are also asked to decide whether the Department
erred by not considering the unquantified federal water rights reserved to
the United States Department of the Interior, Bureau of Land Management
(BLM). Finally, we are asked to determine whether the court erred by
awarding the individual plaintiffs, Robin Silver, M.D., and Patricia
Gerrodette, attorneys’ fees.

¶2             By statute, “Adequate Water” is “[s]ufficient groundwater,
surface water or effluent of adequate quality [that] will be continuously,
legally and physically available to satisfy the water needs for the proposed
use for at least one hundred years” and requires that the proposed user
has demonstrated the “financial capability . . . to construct the water
facilities necessary to make the supply of water available for the proposed
use, including a delivery system and any storage facilities or treatment
works.” Ariz. Rev. Stat. (A.R.S.) § 45-108(I) (2009) (emphasis added).

¶3           At issue is whether ADWR was required to consider the
unquantified federal water rights of BLM in determining whether such
water was statutorily available to Pueblo. Specifically, BLM asserts the
Department erred in its “legally available” analysis. BLM and the
individual plaintiffs (collectively, unless identified separately, Plaintiffs)
additionally argue Pueblo’s proposed pumping will eventually interfere
with the San Pedro Riparian National Conservation Area’s (Conservation
Area) water rights.




                                      3
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

¶4            We uphold the Department’s interpretation of “legally
available,” as outlined in its regulation R12-15-7181, finding the
Department’s interpretation serves a valid purpose in the context of the
entire application process. The Department’s AWSD process, when taken
as a whole, adequately considers whether sufficient water will be
continuously, legally, and physically available to satisfy the needs of the
proposed user for at least one hundred years and insures that the
proposed user has the financial capability to construct, store, and deliver
that supply of water. See A.R.S. § 45-108(I). Nevertheless, as we also
explain, during the regulatory process, the Department must consider
BLM’s unquantified federal water rights in determining whether Pueblo
has demonstrated the availability of “adequate water” under A.R.S. § 45-
108. Accordingly, we vacate the superior court’s judgment in favor of
Plaintiffs.

¶5           Further, we remand this matter back to the Department. On
remand the Department shall give educated consideration to the
unquantified priority federal reserved water rights of BLM, until such
amount is quantified in the General Stream Adjudication for the Gila
River System and Source (Gila Adjudication). After the quantification in
the Gila Adjudication, the quantified amount must be included in the
AWSD process. The Department is not required to consider separately the
potential impact of proposed pumping on area streams or the San Pedro
River. Further, ADWR is not required to consider the potential impact of
proposed pumping on either the San Pedro Riparian National
Conservation Area or on the Conservation Area’s water right. We also
vacate the $155,861.50 in attorneys’ fees awarded to Plaintiffs Silver and
Gerrodette.

              FACTUAL AND PROCEDURAL HISTORY

      A.     San Pedro Riparian National Conservation Area

¶6            The San Pedro River flows from northern Mexico through
southeastern Arizona for approximately 130 miles until it joins with the
Gila River at Winkelman, Arizona. The San Pedro River is one of the few
remaining free-flowing and undammed rivers in the desert southwest and




1     All regulatory citations refer to the Arizona Administrative Code.



                                    4
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court

it is home to diverse flora and fauna.2 The town of Sierra Vista, the
military installation Fort Huachuca, and most of the Conservation Area
are located within the Sierra Vista Subwatershed.

¶7            In 1988, the United States Congress designated
approximately 36 miles of the San Pedro River basin as a national
conservation area. At the same time, Congress created a federal water
reserve right for the Conservation Area “in a quantity sufficient to fulfill
the purpose” of protecting “the riparian area and the aquatic, wildlife,
archeological, paleontological, scientific, cultural, educational, and
recreational resources of the public lands surrounding the San Pedro
River.” 16 U.S.C. §§ 460xx, (a), (1)(d); Arizona-Idaho Conservation Act of
1988, Pub. L. No. 100-696, 102 Stat. 4571.

¶8            The Department of the Interior, through BLM, is mandated
to manage the Conservation Area, and in 1989 BLM asserted a water
rights claim in the Gila Adjudication.3 At this time, the Gila Adjudication
has been active for approximately 40 years. ADWR is a technical advisor
in the Gila Adjudication.

¶9            Since 1989 BLM has filed three amended federal statements
of claim for the Conservation Area that cover the full range of surface
water and groundwater. The Conservation Area has both a 1988 priority
reserved federal water right and a 1985 state certificate-based water right
(CWR No. 33-90103), as well as two or more state-based pending
applications.

¶10             BLM’s federal reserved rights will be quantified in the Gila
Adjudication. See Pub. L. 100-696. The Gila Adjudication has exclusive
jurisdiction to adjudicate the conflicting claims and water rights. In re the
Gen. Adjudication of all Rights to Use Water in the Gila River Sys. & Source
(Gila III), 195 Ariz. 411, 416, ¶ 12, 989 P.2d 739, 744 (1999) (holding federal
reserved water rights could be invoked to protect groundwater from
diversion) (citing to the McCarran Amendment, 43 U.S.C. § 666(a)).


2      The entire river is not perennially free-flowing; flow in certain
sections of the Conservation Area is intermittent.

3      This is designated as a contested case in the Gila Adjudication, as
“In re San Pedro Riparian National Conservation Area, Contested Case No.
W1-11-232.”



                                      5
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

¶11           As explained below, calculating BLM’s water rights is not a
straightforward mathematical equation. BLM’s asserted federal and state
water rights do not cover the exact same geographic area. BLM’s water
right claims do not serve identical purposes or claim identical water
sources. Finally, importantly, BLM’s federal claim and state water volume
claims are not identical.

      B.     Pueblo Del Sol’s Application

¶12            Pueblo is a private water company.4 Pueblo’s service area
covers more than 4,000 acres and is located, variously, 4.5 to 5 miles from
the San Pedro River. In June 2011, Pueblo filed an application for an
AWSD through the year 2032. Such a designation would allow Pueblo to
pump groundwater for the Tribute Master Planned Community (Tribute)
in Sierra Vista, and other projects, as required by Cochise County for new
construction.5 Tribute could contain up to 6,959 residential units. As
planned, the subdivision would proceed in four phases and has water
conservation measures, including xeriscape and requirements for water-
saving devices in the homes, as well as for potential rainwater harvesting.
As of the time of the administrative law judge (ALJ) hearing, Castle &
Cooke had invested over $7 million in the Tribute project, exclusive of the
cost of the land.

¶13          Pueblo’s water is supplied by wells and the area at issue is
outside a statutory active water management area.6 Groundwater is
proposed to be the source of the water supply.7 Pueblo projected its

4     Castle and Cooke, Arizona, Inc., is Tribute’s developer and the
owner of Pueblo. The application for the designation is number “[4]0-
]700705.000[0]. “

5     See A.R.S. § 11-823(A) (2012) (counties may mandate proof of an
adequate water supply through the ADWR before approving a final
subdivision plat); Cochise County Subdivision Reg. 408.03.

6    See A.R.S. § 45–411(A) (2009) (establishing four active water
management areas: Phoenix, Tucson, Prescott and parts of Pinal County).

7      The ALJ found “Appellants presented no substantial evidence to
show that the water [pumped by Pueblo] is either surface water or
subflow and have not shown by clear and convincing evidence that the
water is not groundwater.”


                                    6
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

water demand for that service area, through 2032, would rise from
1,430.85 acre-feet per year (APY) to as much as 4,870.39 APY. The
mandatory 3-D hydrology model submitted by Pueblo with its
designation application concluded that such a draw would put the
groundwater level no greater than 650 feet below the surface after 100
years of pumping. By ADWR regulation, groundwater in the service area
may be no greater than 1200 feet below land surface. See R12-15-716(B)(2).
Pueblo’s application also referenced its 1972 public utility certificate of
convenience and necessity (CC&N) from the Arizona Corporation
Commission.8

¶14             BLM, Silver, and Gerrodette each filed objections to the
application. 9,10 ADWR responded to the objections and issued a decision
letter and draft decision. The letter stated that after consideration of the
objections, ADWR concluded Pueblo’s application satisfied the
requirements for the AWSD.

¶15          Plaintiffs filed separate appeals and participated in a five-
day evidentiary hearing before an ALJ in late 2012. Witnesses included
three hydrologists, an engineer with experience in water treatment plant
engineering, the senior vice president of Castle & Cooke, and ADWR’s
Manager of Recharge, and Adequate and Assured Water Supply
Programs. The ALJ’s 24-page decision made 143 findings of fact and 35
conclusions of law. The ALJ determined that Pueblo had satisfied the
continuously, physically and legally available requirements of A.R.S. § 45-
108. Ultimately, the ALJ concluded that Plaintiffs had not demonstrated
ADWR’s decision was contrary to law or issued in error. The ALJ
dismissed Plaintiffs’ appeals. In April 2013, ADWR adopted the ALJ’s
decision with some revisions (the Decision).




8     See A.R.S. § 40-281, et seq. (2011) (certificate of public convenience
and necessity).

9      See A.R.S § 45-108.1(A), (B) (2009) (notice, publication, and
objections).

10     ADWR argues that BLM did not specifically assert that Pueblo’s
wells would be pumping surface water or appropriable subflow and that
Plaintiffs are precluded from raising that issue on appeal.



                                     7
                        SILVER et al. v. PUEBLO et al.
                            Opinion of the Court

¶16           Plaintiffs filed complaints in superior court seeking judicial
review of the Decision.11 The complaints were consolidated. After
briefing and argument, the superior court vacated the Decision. The
superior court found ADWR’s regulation defining “legal availability,”
R12-15-718(C), erroneously provided for a decision on this prong based
solely on whether the applicant had a CC&N “without any investigation
of whether there might be any possible legal constraints on the intended
supplies, including ones based on hydrologic conditions or impacts on
superior water rights.” The superior court held “ADWR failed to meet its
mandatory duty under A.R.S. § 45-108 to ensure that the proposed source
of water will, among other things, be legally available for at least 100
years” and, therefore, abused its discretion. The court stated that, on
remand, “in determining whether the amount of water requested by
[Pueblo] is legally available, ADWR must consider the existing legal
claims and/or rights and determine whether and to what extent those
claims and/or rights may affect the availability of the water supplies
requested in [Pueblo’s] application.”

¶17           Under the private attorney general doctrine, the superior
court found an upward deviation in the statutory attorneys’ fees rate of
$75 per hour was appropriate and it awarded legal fees in the amount of
$84,210 for Plaintiff Silver and $71,651.50 for Plaintiff Gerrodette. ADWR
and Pueblo appealed the superior court’s judgment to this court. We have
jurisdiction pursuant to A.R.S. §§ 12-913 (2016), -2101(A)(1) (2016).

                                    ISSUES

¶18            Appellants ADWR and Pueblo assert on appeal:

       1.     ADWR properly determined, under Arizona’s
       statutes and Department regulations, that Pueblo satisfied
       the requirements for an Adequate Water Supply
       Designation;

        2.    ADWR was not required to consider or determine the
       extent to which existing legal claims and water rights “may
       affect” the legal availability of groundwater when
       considering Pueblo’s application;

       3.    ADWR was not required to consider whether the
       grant of an adequate water designation could have an

11    See A.R.S. § 12-904 (2015).


                                      8
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

      adverse impact on the instream surface flow of the San
      Pedro River; and

      4.     The superior court abused its discretion in awarding
      attorneys’ fees against Pueblo under the private attorney
      general doctrine.

¶19          In response, Plaintiffs assert:

      1.     ADWR violated A.R.S. § 45-108 and abused its
      discretion in granting Pueblo an AWSD because the
      Department failed to make a valid determination of legal
      availability without first examining any senior legal rights or
      priorities to the water held by BLM for the conservation of
      the San Pedro Riparian Area;

      2.     Regulation R12-15-718(C), defining legal availability,
      conflicts with A.R.S. § 45-108 and is unlawful;

      3.    ADWR has the authority to determine BLM’s
      unquantified water reserve and the extent to which
      groundwater is required for Conservation Area purposes;

      4.     ADWR has the authority to evaluate the potential
      adverse impact of Pueblo’s proposed groundwater pumping
      on the Conservation Area’s federal reserved water right; and

      5.     The superior court properly awarded attorneys’ fees
      to Plaintiffs Silver and Gerrodette.

                       STANDARD OF REVIEW

¶20           On administrative appeal, the superior court “may affirm,
reverse, modify or vacate and remand the agency action.” A.R.S. § 12–
910(E) (2013); Saldate v. Montgomery, 228 Ariz. 495, 497-98, ¶ 10, 268 P.3d
1152, 1154-55 (App. 2012). We review “the superior court’s judgment to
determine whether the record contains evidence to support the judgment
and, in doing so, we reach the underlying issue of whether the
administrative action was illegal, arbitrary, capricious or involved an
abuse of discretion.” Saldate, 228 Ariz. at 498, ¶ 10, 268 P.3d at 1155
(internal quotation and citation omitted).        We are bound to an
administrative agency’s factual findings where they are not clearly
erroneous. Whiteco Outdoor Advertising v. City of Tucson, 193 Ariz. 314,
317, ¶ 7, 972 P.2d 647, 650 (App. 1998) (quoting Murphy v. Town of Chino

                                      9
                        SILVER et al. v. PUEBLO et al.
                            Opinion of the Court

Valley, 163 Ariz. 571, 574, 789 P.2d 1072, 1075 (App. 1989)). When an
administrative decision is based on an interpretation of law, we review
that decision de novo. Id. In construing rules and statutes, we rely on the
plain meaning of the language as the best indicator of the drafters’ intent.
Fragoso v. Fell, 210 Ariz. 427, 430, ¶ 7, 111 P.3d 1027, 1030 (App. 2005).

¶21            When the legislature has not spoken definitively to the issue
at hand, “considerable weight should be accorded to an executive
department’s construction of a statutory scheme it is entrusted to
administer.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S.
837, 843-44 (1984).        When the statutory language is admittedly not
dispositive, “the Director’s expert interpretation deserves considerable
deference by the judiciary” and ADWR is “precisely the type of agency to
which deference should presumptively be afforded.” Ariz. Water Co. v.
Ariz. Dep’t of Water Res., 208 Ariz. 147, 154-55, ¶¶ 30-33, 91 P.3d 990, 997-98
(2004) (internal quotations and citations omitted) (holding the ADWR
director, as the “water czar,” has the authority to promulgate a water
management plan that did not impose conservation measures directly on
all of the water company’s end users).

                                DISCUSSION

       A.    Arizona’s Water Supply and the Adequate Water Supply
       Designation

¶22           Arizona courts recognize that this state’s water supply is in
“critical” condition. See U.S. v. Superior Court (Ariz. Dep’t of Water Res.),
144 Ariz. 265, 270, 697 P.2d 658, 663 (1985). There is insufficient surface
water to satisfy the needs of all potential users. Id. Disputes over the
rights and priority of water users, both surface and groundwater, have
made their way to appellate review numerous times.12                Arizona



12      Such litigation includes: In re Gen. Adjudication of All Rights to Use
Water in Gila River Sys. & Source, 231 Ariz. 8, 289 P.3d 936 (2012) (Gila VI);
In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source,
201 Ariz. 307, 35 P.3d 68 (2001) (Gila V); In re the Gen. Adjudication of all
Rights to Use Water in the Gila River Sys. & Source, 198 Ariz. 330, 9 P.3d 1069
(2000) (Gila IV); In re the Gen. Adjudication of all Rights to Use Water in the
Gila River Sys. & Source, 195 Ariz. 411, 989 P.2d 739 (1999) (Gila III); In re
the Gen. Adjudication of all Rights to Use Water in the Gila River Sys. & Source,
175 Ariz. 382, 857 P.2d 1236 (1993) (Gila II); In re Rights to the Use of the Gila


                                       10
                        SILVER et al. v. PUEBLO et al.
                            Opinion of the Court

distinguishes between surface water and groundwater, even where
surface and ground water may be hydrologically connected. John D.
Leshy & James Belanger, Arizona Law Where Ground and Surface Water
Meet, 20 Ariz. St. L.J. 657, 659 (1988); see also Gila III, 195 Ariz. at 415-16, ¶¶
9-10, 989 P.2d at 743-44 (discussing the “hydrological reality” that
pumping groundwater may have an impact on surface water).

¶23           In Arizona, surface water and sub-flow are subject to the
doctrine of prior appropriation. See A.R.S. §§ 45–141 (2003), -151 (2003), –
251(7) (2003); Gila IV, 198 Ariz. at 334, ¶¶ 3–5, 9 P.3d at 1073. An
appropriator acquires a legal right to water by putting it to a beneficial
use. A.R.S. § 45–141(B). Generally, prior appropriation is a seniority
system. According to state law, the person “first appropriating the water
shall have the better right.” A.R.S. § 45–151(A). This seniority system
becomes important in times of shortage because senior rights holders may
take their entire allotments of water before junior appropriators receive
any at all. A.R.S. § 45–175 (2003).

¶24            Arizona groundwater is regulated by the Department and
governed by the doctrine of reasonable use. A.R.S. §§ 45–102 (2003), -103
(2003), -105 (2012), -451 (2012), -453 (2003). The Arizona Groundwater
Code was created to address concerns about the depletion of
groundwater. See A.R.S. §§ 45–401 to –704 (2003), 1980 Ariz. Sess. Laws,
ch. 1 (4th Spec. Sess.). “The Code was designed to protect the state's
economy and welfare, and to ‘provide a framework for the comprehensive
management and regulation of the withdrawal, transportation, use,
conservation and conveyance of rights to use the groundwater in this
state.’” Ariz. Water Co., 208 Ariz. at 148, ¶ 3, 91 P.3d at 991 (quoting A.R.S.
§ 45–401(B) (2003)).

¶25           Generally speaking, “Arizona law does not recognize a real
property interest in the potential future use of groundwater that has never
been captured and applied to reasonable use.” Davis v. Agua Sierra Res.,
L.L.C., 220 Ariz. 108, 112, ¶ 24, 203 P.3d 506, 510 (2009) (citing A.R.S. §§
45–453, –541 to –554; Leshy & Belanger, supra, at 715–16 (discussing
Ground Management Act’s impact on reasonable use doctrine)). One
exception to that rule, at least, concerns federal water rights reserved for
the use of Indians on Indian Reservations. See Gila III, 195 Ariz. at 420, ¶


River, 171 Ariz. 230, 830 P.2d 442 (1992) (Gila I); United States v. Superior
Court, 144 Ariz. 265, 697 P.2d 658 (1985).


                                        11
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court

31, 989 P.2d at 748 (“We decide this issue in the abstract . . . We do not,
however, decide that any particular federal reservation, Indian or
otherwise, has a reserved right to groundwater. A reserved right to
groundwater may only be found where other waters are inadequate to
accomplish the purpose of a reservation . . . inevitably fact-intensive
inquiries that must be made on a reservation-by-reservation basis.”)
(citing United States v. New Mexico, 438 U.S. 696, 700 (1978)).

¶26           Since Winters v. United States, 207 U.S. 564 (1908), the
Supreme Court has held that “when the Federal Government withdraws
its land from the public domain and reserves it for a federal purpose, the
Government, by implication, reserves appurtenant water then
unappropriated to the extent needed to accomplish the purpose of the
reservation.” Cappaert v. United States, 426 U.S. 128, 138 (1976) (citations
omitted). Federal water rights are subordinate to rights acquired under
state law prior to creation of the reservation, but senior to the claims of
future state appropriators. Id.; Gila V, 201 Ariz. at 310-11, ¶ 6, 35 P.3d at
71-72. Federal reserved water right holders can claim priority based on
the date of establishment of the federal reservation. Gila VI, 231 Ariz. at
13, ¶ 18, 289 P.3d at 941. “In this sense, a federally reserved water right is
preemptive. Its creation is not dependent on beneficial use, and it retains
priority despite non-use.” Gila V, 201 Ariz. at 311, 35 P.3d at 72.

¶27          Under the current water management system, a developer
seeking to develop a subdivision in Arizona outside of an active water
management area must show: (1) by a water report from ADWR, that the
developer itself has an adequate water supply, or (2) that the developer
has a written commitment from a city, town, or private water company
that the water supply company has an adequate water supply, as
designated by ADWR. A.R.S. § 45-108(A), (B).13,14 One important purpose

13     BLM in support of its argument cites to R12-15-718(D), (E)-(N),
regulations relevant to developers inside an Active Management Area as
to users of surface water, [Central Arizona Project] water, effluent, water
exchange agreement water, long-term storage water credits, water from
storage or Colorado River water. An AMA is a designated area
experiencing severe groundwater depletion. The current matter is not in
an AMA and such regulations are inapplicable.

14     In 2016, Senate Bills 1400 and 1268 were passed by the Arizona
Legislature. SB 1268, 52nd Leg., 2nd Reg. Sess. (Ariz. 2016); SB 1400, 52nd
Leg., 2nd Reg. Sess. (Ariz. 2016). Senate Bills 1268 and 1400 would have


                                     12
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

of the adequacy program is to make real estate buyers aware of any
potential water supply limitations. It is the Director’s duty “to evaluate
the proposed source of water for the subdivision to determine whether
there is an adequate water supply for the subdivision.” A.R.S. § 45-108(B).

¶28          By statute “adequate water supply,” A.R.S. § 45-108(I), is
defined as meaning both of the following:

      1. Sufficient groundwater, surface water or effluent of
      adequate quality will be continuously, legally and physically
      available to satisfy the water needs of the proposed use for at
      least one hundred years.

      2. The financial capability has been demonstrated to
      construct the water facilities necessary to make the supply of
      water available for the proposed use, including a delivery
      system and any storage facilities or treatment works. The
      director may accept evidence of the construction assurances
      required by § 9-463.01, 11-823 or 32-2181 to satisfy this
      requirement.

(Emphasis added.)

¶29          The statute does not define what “continuously, legally and
physically available” means, but ADWR has promulgated regulation R12-
15-71615 to define “physical availability,” R12-15-71716 to define
“continuous availability,” and R12-15-71817 to define “legal availability.”



allowed municipalities located in counties that had adopted an adequate
water supply ordinance to opt out of the ordinance under certain
conditions. The governor vetoed both bills.

15    R12-15-716. Physical Availability

      A. The volume of a proposed source of water that is
      physically available to an applicant for a determination of
      assured water supply or a determination of adequate water
      supply is the amount determined by the Director to be
      physically available pursuant to subsections (B) through (L)
      of this Section.



                                    13
                SILVER et al. v. PUEBLO et al.
                    Opinion of the Court



B. If the proposed source is groundwater, the applicant shall
submit a hydrologic study, using a method of analysis
approved by the Director, that accurately describes the
hydrology of the affected area. Except as provided in
subsection (D) of this Section, the Director shall determine
that the proposed volume of groundwater will be physically
available for the proposed use if both of the following apply:
1. The groundwater will be withdrawn as follows:
a. Except as provided in subsection (B)(1)(b) of this Section,
from wells owned by the applicant . . . that are located
within the service area of the applicant . . . that the Director
determines are likely to be constructed for future uses of the
applicant. . ..
…
2. Except as provided in subsection (C) of this Section, the
groundwater will be withdrawn from depths that do not
exceed the applicable maximum 100-year depth-to-static
water level according to the following:
…
c. Developments outside AMAs, except dry lot
developments 1200 feet below land surface. . .
…
3. The Director shall calculate the projected 100-year depth-
to-static water level by adding the following for the area
where groundwater withdrawals are proposed to occur:
a. The depth-to-static water level on the date of application.
b. The projected declines caused by existing uses, using the
projected decline in the 100-year depth-to-static water level
during the 100-year period after the date of application,
calculated using records of declines for the maximum period
of time for which records are available up to 25 calendar
years before the date of application. If evidence is provided
to the Director of likely changes in pumpage patterns and
aquifer conditions, as opposed to those patterns and
conditions occurring historically, the Director may
determine projected declines using a model rather than
evidence of past declines.
c. The projected decline in the depth-to-static water level
during the 100-year period after the date of application,
calculated by adding the projected decline from each of the


                              14
               SILVER et al. v. PUEBLO et al.
                   Opinion of the Court



following that are not accounted for in subsection (B)(3)(b) of
this Section:
i. The estimated water demand of issued certificates and
water reports that will be met with groundwater or stored
water recovered outside the area of impact of the stored
water, not including the demand of subdivided lots included
in abandoned plats;
ii. The estimated water demand of designations that will be
met with groundwater or stored water recovered outside the
area of impact of the stored water; and
iii. The groundwater reserved for developments for which
the Director has issued an analysis pursuant to R12-15-703 or
R12-15-712.
d. The projected decline in depth-to-static water level that
the Director projects will result from the applicant's
proposed use over a 100-year period.
…

E. Subject to subsection (L) of this Section, if the proposed
source of water is surface water, other than CAP water, or
Colorado River water, the Director shall determine the
annual volume of water that is physically available for the
proposed use, taking into consideration the priority date of
the right or claim, by calculating 120% of the firm yield of
the proposed source at the point of diversion as limited by
the capacity of the diversion works; except that if the
applicant demonstrates that an alternative source of water
will be physically available during times of shortage in the
proposed surface water supply, the Director shall determine
the annual volume of water available by calculating 100% of
the median flow of the proposed source at the point of
diversion as limited by the capacity of the diversion works.
The Director shall determine the firm yield or median flow
as follows:
1. By calculating the firm yield or median flow at the point of
diversion based on at least 20 calendar years of flow records
from the point of diversion, unless 20 calendar years of
records are unavailable and the Director determines that a
shorter period of record provides information necessary to
determine the firm yield or median flow; or


                              15
                     SILVER et al. v. PUEBLO et al.
                         Opinion of the Court


     2. By calculating the firm yield or median flow at the point of
     diversion using a hydrologic model that projects the firm
     yield or median flow, taking into account at least 20 calendar
     years of historic river flows, changes in reservoir storage
     facilities, and projected changes in water demand. The yield
     available to any applicant may be composed of rights to
     stored water, direct diversion, or normal flow rights. If the
     permit for the water right was issued less than five years
     before the date of application, the Director shall require the
     applicant to submit evidence, as applicable, in accordance
     with this subsection.
     …

     K. In the case of two or more pending, conflicting, complete
     and correct applications for determinations of assured water
     supply or determinations of adequate water supply, the
     Director shall give priority to the application with the
     earliest priority date . . ..

16   R12-15-717. Continuous Availability

     A. The Director shall determine that an applicant will have
     sufficient supplies of water that will be continuously
     available for 100 years if the applicant submits sufficient
     evidence that adequate delivery, storage, and treatment
     works will be in place in a timely manner to make the water
     available to the applicant or the applicant's customers for
     100 years and the applicant meets any applicable
     requirements in subsections (B) through (G) of this Section.

     B. If the proposed source of water is groundwater, the
     applicant shall demonstrate that wells of a sufficient capacity
     will be constructed in a timely manner to serve the proposed
     uses on a continuous basis for 100 years.

17   R12-15-718. Legal Availability

     A. The Director shall determine that an applicant will have
     sufficient supplies of water that will be legally available for
     at least 100 years if the applicant submits all of the
     applicable information required by this Section.


                                      16
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

      B.     ADWR Adequate Water Supply Analysis

¶30           Plaintiffs assert ADWR could not make a valid
determination of legal availability without first examining any senior legal
rights held by BLM for the benefit of the Conservation Area. Plaintiffs,
therefore, seek a finding that R12-15-718 defining legal availability
conflicts with A.R.S. § 45-108 and is unlawful. We disagree, finding the
Department’s interpretation of legally available in the context of
“continuously, legally and physically available” serves a valid purpose
when the three consecutive regulations and A.R.S. § 45-108(I)(2) are read
together. But, as we also explain, R12-15-718 does not exempt the
Department from having to consider BLM’s reserved water right even
though that right has not yet been quantified.

¶31           At the outset, we must clarify ADWR’s two-step
determination under the legal availability prong of A.R.S. § 45-108(I)(1).
First, the Department must find the water company has a reasonable and
beneficial use for the water. A.R.S. § 45-453. Second, the water company
must have a legal means of delivering that water as evidenced by a
certificate of convenience and necessity from the Corporation
Commission.18       See A.R.S. § 45-108(I)(2); R12-15-718(C).      ADWR


      …

      C. If the applicant is a private water company applying for a
      designation, the applicant shall submit evidence that the
      applicant has a certificate of convenience and necessity
      approved by the Arizona Corporation Commission, or has
      been issued an order preliminary by the Arizona
      Corporation Commission for a certificate of convenience and
      necessity, authorizing the applicant to serve the proposed
      use.


18     Arizona’s public policy has long been that public service
corporations, such as water companies, are regulated monopolies. James
P. Paul Water Co. v. Ariz. Corp. Comm’n, 137 Ariz. 426, 429, 671 P.2d 404,
407 (1983). The Corporation Commission is statutorily required to
investigate all applicants for a certificate of public convenience and
necessity for a given area, and to issue a certificate only upon a showing
that the issuance to the applicant serves the public interest. A.R.S. §§ 40-
281, –285; see Pac. Greyhound Lines v. Sun Valley Bus Lines, 70 Ariz. 65, 68,


                                     17
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court

determined that Pueblo, in developing Tribute, had both a 1972 CC&N
and a reasonable and beneficial use for the water. On that basis, ADWR
found Pueblo satisfied the Department’s “legal availability” requirement.
The ALJ agreed and affirmed the Department’s finding. We likewise
agree.

¶32           Importantly, the Director’s duty to determine whether
adequate water is available, see supra ¶ 29, is significantly more involved
than determining mere legal availability. Not only is the process of
determining whether there is adequate water available complicated, but it
can also be time consuming, taking a year or more.19,20 The Director must
consider the other elements comprising the definition of “adequate water
supply.”     The physical availability prong requires, for example,
mandatory 3-D hydrology modeling to examine the current water
demand, the committed water demand, and the projected demands of the
applicant and the other users.21 In fact, the physical availability analysis



216 P.2d 404, 406 (1950). “Once granted, the certificate confers upon its
holder an exclusive right to provide the relevant service for as long as the
grantee can provide adequate service at a reasonable rate. If a certificate of
convenience and necessity within our system of regulated monopoly
means anything, it means that its holder has the right to an opportunity to
adequately provide the service it was certified to provide.” James P. Paul
Water Co., 137 Ariz. at 429, 671 P.2d at 407.

19     The superior court looked solely at the legal availability prong and
stated “ADWR based this finding solely on the fact that [Pueblo] has a
CC&N issued by the ACC in 1972. ADWR considered no other factors in
reaching its finding . . . without taking into account BLM’s [federal
reserved water right] in [the Conservation Area] and the state-law
instream flow water right possessed by the BLM.” Analyzing the legal
availability prong in a vacuum is problematic. The legal availability
analysis can only be appreciated in the context of the entire designation
process.
20    ADWR regulations cite a goal of having AWSD completed within
210 days.

21    The Pueblo model was reviewed by a Department hydrologist and
was returned once for revisions.



                                     18
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court

done by Pueblo required consideration of the water already committed to
approximately 200 area users.22

¶33            In addition to satisfying the legal availability requirement,
the ALJ found ADWR also considered Pueblo’s proposed source of the
water, the current demand from other users, the committed demand to
other users, and the projected demand of other users.23 The record
supports this finding. The record further supports the finding that Pueblo
demonstrated that sufficient water would be continuously available for
100 years.

¶34           BLM argues that ADWR’s focus on the issuance of an CC&N
is contrary to the plain language of the statute, which, it alleges, “clearly
requires an examination of potentially conflicting water rights.” We do
not find that the plain language of A.R.S. § 45-108(I) requires the
interpretation of legal availability put forward by BLM.

¶35            The Department has determined legal availability to mean,
under R12-15-718(C), a private water company that has a permanent or
preliminary certificate of convenience and necessity from the Arizona
Corporation Commission.           ADWR’s interpretation of statutory
requirements “should be given great weight in the absence of clear
statutory guidance to the contrary.” Ariz. Water Co., 208 Ariz. at 154, ¶ 30,
91 P.3d at 997. Because “[t]he legislature mandated that the Director be an
expert in the field,” and gave him “broad powers to achieve groundwater
conservation,” and there being no statutory guidance to the contrary, we
accept his interpretation of A.R.S. § 45-108. Id. at 155, ¶ 31, 91 P.3d at 998
(internal citation omitted).




22     See ADWR Demand Tables.

23      “Committed demand” is the 100-year water demand at build-out of
all recorded lots not yet being served water within the service area. R12-
15-701(24). “Current demand” is the 100-year water demand for existing
uses in the service area as based on the annual report for the previous
calendar year. R12-15-701(26). “Projected demand” is the 100-year water
demand at build-out, not including committed demand or current
demand, of customers and/or plats reasonably projected to be approved
in the service area. R12-15-701(57).



                                     19
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

¶36           We hold the Department’s requirement that a private water
company have a CC&N is in keeping with the statutory requirement of
A.R.S. § 45-108(I)(2) that the utility be sufficiently financially viable to
deliver, store and treat such water and, as such, serves the consumer
protection purposes of the statute. Thus, R12-15-718 is not in conflict with
A.R.S. § 45-108.

¶37           Our conclusion endorsing ADWR’s “legal availability”
analysis, however, does not excuse ADWR from considering BLM’s
priority federal water claim.

      C.     BLM’s Priority Federal Claim

¶38            BLM asserts on appeal that ADWR should consider its
priority water right and either quantify it or take its claim at face value.
ADWR argues that while the federal government has a reserved water
right, the amount is undetermined and ADWR is prohibited from
considering that water right because the Gila Adjudication is the exclusive
forum to resolve that question. Under the regulatory scheme, we agree
with BLM -- ADWR must “consider” BLM’s currently unquantified water
rights with a recognition that the federal water right will have priority
over any state-based water rights vested after 1988. See Cappaert, 426 U.S.
at 138-39; Gila VI, 231 Ariz. at 13, ¶ 18, 289 P.3d at 941.

¶39           In ruling in favor of BLM on this issue, we find not only that
ADWR has the legal authority to consider BLM’s federal claim, it has a
duty to do so. In fact, R12-15-716(B) states:

      3. The Director shall calculate the projected 100-year depth-to-
      static water level by adding the following for the area where
      groundwater withdrawals are proposed to occur:
      a. The depth-to-static water level on the date of application.
      b. The projected declines caused by existing uses, using the
      projected decline in the 100-year depth-to-static water level
      during the 100-year period after the date of application . . ..

(Emphasis added.) The water supporting the Conservation Area is
certainly an “existing use.” We see nothing under this regulation which
defines “existing use” to exclude federal water claims. Rather, requiring
the consideration of BLM’s federal reserved water right fulfills the intent
of the groundwater management statutes to protect Arizona’s economy
and welfare, and to provide a comprehensive framework for the
management and regulation of groundwater, without compromising


                                    20
                       SILVER et al. v. PUEBLO et al.
                           Opinion of the Court

Congress’s intent to preserve the Conservation Area. See Ariz. Water Co.,
208 Ariz. at 148, ¶ 3, 91 P.3d at 991.

¶40             ADWR itself need not, however, specifically quantify BLM’s
water rights. 24,25 That determination is rightly and exclusively the domain
of the Gila Adjudication. See Gila III, 195 Ariz. at 414, ¶ 2, 989 P.2d at 742
(“The purpose of a comprehensive general stream adjudication is to
determine the nature, extent and relative priority of the water rights of all
who use the water of a river system and source.”) (internal quotation
marks omitted) (citing A.R.S. §§ 45–251(2), –252(A));26 U.S. v. Superior
Court (San Carlos Apache Tribe), 144 Ariz. 265, 270, 697 P.2d 658, 663 (1985)
(“Since there is not enough water to meet everyone’s demands, a
determination of priorities and a quantification of the water rights
accompanying those priorities must be made. Obviously, such a task can
be accomplished only in a single proceeding in which all substantial
claimants are before the court so that all claims may be examined,
priorities determined, and allocations made.”). The Gila Adjudication
will determine whether BLM has a reserved right to the groundwater
“where other waters are inadequate to accomplish the purpose of a

24   At oral argument, ADWR stated its belief that the superior court’s
judgment required it to quantify BLM’s water rights.

25      Rather than doing an independent analysis, BLM argues that
ADWR could accept its water claims at “face value” when considering
whether there will be adequate water for applicants. To this end BLM
cites, by analogy, R12-15-718(E)(1) and (3). Because those regulations
specifically require applicants to provide proof of a valid water right
when using surface water, they are not helpful here. Nor do we find
ADWR must accept BLM’s federal claims at face value.

26   Section 45-252(A) reads:

       One or more water users upon a river system and source, the
       water rights of which have not been previously adjudicated
       under this article and administered by the director of water
       resources, or the state of Arizona upon the request of any
       state agency other than the department of water resources
       may file a petition to have determined in a general
       adjudication the nature, extent and relative priority of the
       water rights of all persons in the river system and source.


                                     21
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

reservation,” Gila III, 195 Ariz. at 420, ¶ 31, 989 P.2d at 748, and what the
minimum amount will be “to accomplish the purpose of the reservation,”
Cappaert, 426 U.S. at 138.

¶41           ADWR protests that requiring it to consider BLM’s claim
will be time consuming and arduous. The fact that the consideration
process may take time and effort does not exempt ADWR from having to
do so. We agree with BLM that considering BLM’s claim does not amount
to adjudicating the claim but is, rather, an “exercise of agency discretion”
in regulating adequate water supply designations. The record shows that
ADWR, as a technical advisor in the Gila Adjudication, is aware both of
the claims to water made by BLM and the potential calculation errors or
offsets the Gila Adjudication may employ in quantifying the “minimum
necessary” to fulfill BLM’s purpose.27 The Department is knowledgeable
as to the range of BLM’s federal claims and the future status of the aquifer.

¶42           The Department, therefore, must use its knowledge and
expertise to look at designation applications with an educated eye as to
what the Gila Adjudication may eventually determine to be BLM’s water
right and, taking that conclusion into consideration, determine whether
there is “adequate water” under A.R.S. § 45-108 for applicants.28 BLM’s

27       On the larger scale, the Department knows, for example, that the
United States Geologic Service (USGS) model and resulting capture map
used by BLM do not include the effects of groundwater recharge from the
Sierra Vista Water Reclamation Facility (WRF), but which were included
in Pueblo’s hydrology model. The ALJ heard testimony that based on
current data this WRF will recharge approximately 75% of the water
Pueblo will draw from the aquifer and that it will have a positive recharge
effect on the San Pedro river flow over a wide area. The Department is
certainly aware that Sierra Vista plans to build three additional permanent
wastewater treatment facilities, one of which will be dedicated to Tribute
and all of which will contribute to local water recharge, but that these
facilities were not included in Pueblo’s hydrology model. On a smaller
scale, the Department knows that the USGS model used hypothetical
wells not intended to show the actual effect of Pueblo’s wells, and that it
included wells pumping, day in and day out, 24 hours a day, season after
season, which is not realistic.
28       Both Tribute and the Tribute water reclamation facilities will
proceed in four stages. These stages will allow ADWR to reconsider
designations, as needed. ADWR is required to review designations of


                                     22
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

claim, while potentially expansive, is not infinite and does not necessarily
conflict with development in the area.29 The Gila Adjudication is the
correct venue to suss out the minimum amount of water that will serve
BLM’s purpose. See Gila III, 195 Ariz. at 421-22, ¶ 38, 989 P.2d at 749-50
(“We do not . . . read the case law to require a zero-impact standard of
protection for federal reserved rights . . . only that amount of water
necessary to fulfill the purpose of the reservation, no more.”). For these




adequate water supply every 15 years to determine whether they should
be modified or revoked. R12-15-715(C). The director has the authority to
revoke a designation of adequate water supply if the water supply may
become inadequate. A.R.S. § 45-108(F); R12-15-715.
29     BLM’s federal claim includes an average stream flow for the San
Pedro River of 11,150 AFY. BLM also claims up to 20,800 AFY in flood
flows and claims from other surface water point sources such as ponds,
seeps and small lakes. BLM’s 1985 certified instream flow is for 14,694
AFY.

       By order dated July 14, 2010, the Special Master in the Gila
Adjudication directed the Department to evaluate the methodologies used
by BLM to quantify its federal and state claims.         One concern of the
Special Master’s was the interaction of BLM’s Certificate of Water Right
under state law and BLM’s federal reserved water rights for the
Conservation Area. The Special Master found that CWR No. 90103.0000
“must be considered a water right available to the United States to serve
the federal purposes of the [Conservation Area], and . . . The beneficial
uses of CWR No. 90103.0000 are distinct and separate uses that partially,
but not fully, fulfill the federal purposes of the [Conservation Area] to the
extent water is required.” The Special Master also found that while the
federal reserved right outlined by Congress had a priority date of 1988,
the land later acquired by BLM and added to the Conservation Area “is
the date of their incorporation within the conservation area.” A 2012
report issued by ADWR explores the methodologies BLM used in
substantiating its claims. See Report Concerning Federal Reserved Water
Rights Claims for SPRNCA In re: The General Adjudication of the Gila River
System and Source (May 2012).


                                     23
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

reasons we hold that ADWR must “consider” BLM’s currently
unquantified reserved federal water rights as directed in this opinion.30

       D.     Must ADWR Consider the Impact of Pumping?

¶43           Plaintiffs argue that Pueblo’s proposed pumping will
eventually interfere with the Conservation Area’s water rights and local
surface water and, as such, should be taken into consideration when
determining whether Pueblo satisfied the requirements for an adequate
water supply designation under A.R.S. § 45-108. The Department argues,
and we agree, that ADWR is not required to separately consider the
impact of pumping on the Conservation Area or local surface or
groundwater except as it may affect the statutory considerations we have
directed above. An administrative agency has only the powers granted to
it by the legislature. Eaton v. AHCCCS, 206 Ariz. 430, 436, ¶ 23, 79 P.3d
1044, 1050 (App. 2003). Neither A.R.S. § 45-108 nor any other law in effect
requires pumping impact analysis and the Director of ADWR states its
policy is to not consider the impact of pumping on streams.31 We find no
compelling reason to impose such a requirement on ADWR for the
purpose of determining whether an applicant meets the requirements for
an adequate water supply designation.



30      ADWR asserts that BLM has waived any issues related to its state
certified water claim or in stream flow waters because BLM failed to raise
the issue with specificity in its objections to the Department. ADWR
should consider, however, those rights in determining BLM’s net demand
under both state and federal water rights given the Special Master’s
indication that the state water rights may “partially, but not fully, fulfill
the federal purposes of the [Conservation Area] to the extent water is
required.”

31      In 2007, the legislature enacted A.R.S. § 45-6401, which authorized
an election in the Upper San Pedro River Watershed to determine whether
an Upper San Pedro Water District (USPWD) should be established. If
such a water district had been established, then under A.R.S. § 45-108.04,
an applicant for a water supply determination in that area would have
been required to demonstrate its projected water use was consistent with
USPWD goals, including maintaining the aquifer and base flow conditions
as provided for in A.R.S. § 45-6403(B). An election was held in 2010 and
the establishment of the district was defeated.


                                     24
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

            ATTORNEYS’ FEES BELOW AND ON APPEAL

¶44           On appeal, Pueblo asserts that the superior court abused its
discretion in awarding $155,861.50 in attorneys’ fees to Plaintiffs Silver
and Gerrodette. Pueblo asserts that the private attorney general doctrine
is not applicable here, and even if it were, a portion of the fees was non-
recoverable. Pueblo also asserts the superior court erred in granting an
upward deviation from the $75 hourly rate.

¶45             The purpose of the private attorney general doctrine is “to
promote vindication of important public rights.” Arnold v. Ariz. Dep’t of
Health Servs., 160 Ariz. 593, 609, 775 P.2d 521, 537 (1989) (internal
quotation and citation omitted). The doctrine “is an equitable rule which
permits courts in their discretion to award attorneys’ fees to a party who
has vindicated a right that: (1) benefits a large number of people; (2)
requires private enforcement; and (3) is of societal importance.” Id.
(citations omitted).

¶46          Because we are vacating the superior court’s judgment, we
also vacate the fee award to Plaintiffs. In this opinion, while we have
rejected ADWR’s assertion that it need not consider BLM’s unquantified
federal water claim, we have also rejected the Plaintiffs’ argument that
ADWR must consider the broadest version of BLM’s water claims, and
make especial analysis of the impact of Pueblo’s pumping on the
conservation area’s water rights.

¶47           A determination of whether the rights Plaintiffs contended
for are vindicated must await the ultimate judgment in this matter and a
review of the contours of that judgment. At that time all fees to judgment,
including the current appellate fees, may be sought.




                                    25
                      SILVER et al. v. PUEBLO et al.
                          Opinion of the Court

                              CONCLUSION

¶48           For the above stated reasons, the superior court’s decision is
vacated. The superior court erred in its consideration of the definition of
legal availability and in requiring ADWR to consider the impact on the
Conservation Area. We direct ADWR that it must take into consideration
BLM’s water rights claims. The fee award below is vacated.




                         AMY M. WOOD • Clerk of the Court
                          FILED: AA




                                      26
