      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN



                                         03-02-00724-CV



             The City of San Marcos, Texas; San Marcos River Foundation and
                              Dr. Jack Fairchild, Appellants

                                                 v.

                   Texas Commission on Environmental Quality, Appellee




    FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
           NO. 99-08847, HONORABLE PAUL DAVIS, JUDGE PRESIDING



                                          OPINION


               Appellee Texas Commission on Environmental Quality1 (“the Commission”)

accepted an administrative law judge’s (ALJ) proposal to grant appellant The City of San Marcos

(“the City”) a permit to convey discharged wastewater effluent in the San Marcos River and to divert

water from the river at a point approximately three miles downstream from the discharge point. The




       1
          By statute effective September 1, 2001, the legislature changed the name of the Texas
Natural Resource Conservation Commission to the Texas Commission on Environmental Quality,
to be effective January 1, 2004. The statute granted the TNRCC authority to adopt a timetable for
phasing in the change of the agency’s name, so that until January 1, 2004, the agency may perform
any act authorized by law under either title. See Act of April 20, 2001, 77th Leg., R.S., ch. 965,
§ 18.01, 2001 Tex. Gen. Laws 1985. On September 1, 2002, the agency began using its new name,
while continuing to recognize the former.
Commission imposed certain limiting conditions on the permit in a final order. Appellants San

Marcos River Foundation and Dr. Jack Fairchild (collectively “the Foundation”) sought judicial

review of the Commission’s final order, as well as an interim order, in the district court. See Tex.

Gov’t Code Ann. § 2001.171 (West 2000); Tex. Water Code Ann. § 5.351 (West 2000). The City

sought judicial review of the final order’s imposition of limiting conditions on the permit. The

district court affirmed the Commission’s orders in all respects. On appeal, the Foundation argues

that the district court erred because no legal authority permits the City to divert state water without

an approved appropriative right; in the alternative, the Foundation argues that the Edwards Aquifer

Authority Act nullifies the Commission’s authority to grant the permit in the first place.2 The City

asserts various issues challenging the special conditions imposed on the permit. Because we

conclude that there is no common-law right by which the City can retain ownership over its

wastewater effluent after discharging it into a state watercourse, we will reverse and render judgment

for the Foundation.


                      FACTUAL AND PROCEDURAL BACKGROUND

               The City obtains its municipal water supply from wells drilled into a groundwater

formation known as the Edwards Aquifer. In 1995, the City submitted to the Commission an

application for a permit to use the bed and banks of the San Marcos River to convey treated sewage

effluent, created by the City’s municipal use of groundwater from the Edwards Aquifer, from the




       2
         In the event that this Court overrules the Foundation’s appeal, the Foundation supports all
of the conditions imposed on the permit.


                                                  2
discharge point at the City’s wastewater treatment plant to a downstream diversion point. The City

sought to divert an amount of water slightly less than the volume of sewage effluent it had

discharged. The diverted water would be transported to a new water treatment plant, where it would

be treated to drinking water standards and then returned to the City’s potable water supply system.

According to the City, it embarked on this reuse project “in order to facilitate the City’s efforts to

reduce its dependence on the Edwards Aquifer.”

               The water code requires that no person may appropriate or divert state water without

first obtaining a permit from the Commission to make the appropriation. Tex. Water Code Ann.

§ 11.121 (West 2000). The City’s application did not seek such an appropriation permit because,

as the Commission stated when it issued notice of the City’s application later that year, “all of the

water to be conveyed and used is the city’s private water.” Thus, from the beginning, the City

believed that the Commission was to have only a ministerial role in the application process; the

Commission’s duty would be to merely monitor the transportation of the effluent and ensure that the

City diverted only its private wastewater, minus estimated losses due to evaporation and seepage.

               However, after notice of the application was published pursuant to the water code,

see id. § 11.132, a number of affected downstream property owners notified the Commission that

they opposed the City’s reuse project for a variety of reasons, primarily because it would reduce the

flow of the river. Requesting a hearing, the Foundation opposed the assumption that the water to

be diverted would be the City’s private water. The Foundation’s letter stated:


       [T]he city is exchanging its low quality sewage for high quality and state-owned
       water out of the San Marcos and Blanco Rivers under this permit and should not be



                                                  3
        allowed. If the City wants to reuse its wastewater, it should use it directly rather than
        unnecessarily mixing it with the pure river water.3


The Commission referred the City’s application to the State Office of Administrative Hearings

(SOAH) for a hearing on the merits.4 One of the principal issues for determination was whether the

City would be diverting its private water or state water. The ALJ submitted a certified question and

a recommendation for disposition to the Commission, in which it recognized that the “most crucial

issue in determining the nature of the case is defining the legal character of the City’s wastewater

after it is discharged into the San Marcos River.”

                 In response to the ALJ’s certified question, the Commission issued an interim order

on July 2, 1998. Because the water code did not explicitly provide for the type of permit for which

the City applied, the Commission concluded that it had authority to evaluate and approve the City’s

application pursuant to sections 5.012 and 5.102(a) of the water code. See id. §§ 5.012, .102(a)

(West 2000).5 The Commission concluded that it possessed the authority to determine the legal


        3
           According to a letter sent by other property owners, “[t]he seeming obvious intent now of
the City is to dilute their own private effluent with State water rather than to recycle their wastewater
at the treatment plant.”
        4
            Appellants in this case were designated as parties to the proceeding.
        5
            Section 5.012 of the water code provides:

            The commission is the agency of the state given primary responsibility for
            implementing the constitution and laws of this state relating to the conservation
            of natural resources and the protection of the environment.

Tex. Water Code Ann. § 5.012 (West 2000). Section 5.102(a) provides:

            The commission has the powers to perform any acts whether specifically
            authorized by this code or other law or implied by this code or other law,

                                                   4
character of the water at issue and then determined that the City’s discharged effluent remained its

private groundwater.      The Commission also concluded that, if the ALJ proposed that the

Commission approve the City’s application, the approval should contain special conditions based

on factual determinations regarding historical and future discharge rates, transportation

measurements, diversion rates, and other conditions designed to protect downstream water rights as

well as environmental uses. Following an evidentiary hearing on remand, the ALJ submitted its

Proposal for Decision (“PFD”) in which it recommended that the City’s application be granted,

subject to appropriate conditions, “based upon the City’s ‘historical’ discharges of effluent, to protect

downstream water rights and environmental uses of the river.” The Commission accepted the PFD

and issued a final order granting the permit on May 11, 1999.

                 In its final order, the Commission made findings of fact and conclusions of law.

Among other things, the Commission found:


        •    The City has discharged effluent at or near the present discharge point . . . for
             several decades, without seeking or intending to retrieve such effluent for reuse;
             however, the City now intends within approximately the next two years to begin
             recycling such effluent by diverting it into a pipeline that will be constructed
             across the San Marcos River at Westerfield Crossing. The pipeline will transport
             both the recycled effluent, as well as surface water imported from the Guadalupe
             River, to a raw water treatment facility that is presently under construction north
             of the San Marcos River.




            necessary and convenient to the exercise of its jurisdiction and powers as
            provided by this code and other laws.

Id. § 5.102(a) (West 2000).

                                                   5
       •   Slightly less than one percent of the effluent discharged by the City will be lost
           from the bed and banks of the river during transport from the point of discharge
           to the point of diversion at Westerfield Crossing.

       •   Proper monitoring of (1) the quantity of Edwards Aquifer-derived groundwater
           discharged into the San Marcos River by the City; (2) the time of transport for
           such groundwater within the river to the point of diversion at Westerfield
           Crossing; (3) transportation losses of such groundwater; (4) potential
           measurement errors, exceeding industry and TNRCC standards, in the discharge
           or diversion of such groundwater; and (5) the rates at which such groundwater is
           discharged and diverted, collectively, will allow the City to divert volumes of
           water that, on a continuing basis, reasonably correspond with and are attributable
           to the City’s prior discharges of Edwards Aquifer-derived groundwater.

       •   Owners of rights to use surface water in the San Marcos and Guadalupe River
           Basins downstream of Westerfield Crossing have relied on the historical presence
           in the river system of water currently discharged as effluent by the City.


The Commission also found that certain special conditions were necessary to protect downstream

water rights and environmental uses. The final order adopted the legal conclusions set out in the July

2, 1998 interim order and then set out, among others, the following conclusions of law:


       •   [M]easuring the quantity of effluent discharged by the City during one calendar
           day that is attributable to Edwards Aquifer groundwater and then limiting the
           quantity of such groundwater that can be diverted at Westerfield Crossing during
           the next calendar day to 94 percent of that measured portion of discharges will
           assure . . . that no net quantity of state-owned water will be removed from the San
           Marcos River through the exercise of the City’s authorization to recover the
           groundwater it conveys via the river.

       •   Limiting the City’s Westerfield Crossing diversion rate to the maximum
           discharge rate authorized [by the Commission] will contribute to assurance that
           no improper diversion of state water occurs and will protect environmental uses
           by preventing excessive, sudden disruptions in the natural flow regime of the San
           Marcos River.




                                                  6
The final order also concluded that the imposition of special conditions upon the proposed diversion

would be necessary to protect downstream water rights and environmental uses. The Foundation and

the City sued the Commission, seeking judicial review of the final order. The district court affirmed

the final order in all respects and, to the extent not subsumed by the final order, the interim order.6

This appeal followed.

               For further background purposes, it is necessary to point out that in 1997, while the

City’s application was pending before the SOAH, the Texas Legislature passed the comprehensive

statewide water plan known as Senate Bill 1. See Act of June 1, 1997, 75th Leg., R.S., ch. 1010,

1997 Tex. Gen. Laws 3610 (codified throughout the Texas Water Code). It contains several key

provisions on the deliverance of water down banks and beds, including one that provides for the type

of reuse project developed by the City in this case:


       A person who wishes to discharge and then subsequently divert and reuse the
       person’s existing return flows derived from privately owned groundwater must obtain
       prior authorization from the commission for the diversion and the reuse of these
       return flows. The authorization may allow for the diversion and reuse by the
       discharger of existing return flows, less carriage losses, and shall be subject to special
       conditions if necessary to protect an existing water right that was granted based on
       the use or availability of these return flows. Special conditions may also be provided
       to help maintain instream uses and freshwater inflows to bays and estuaries. A
       person wishing to divert and reuse future increases of return flows derived from
       privately owned groundwater must obtain authorization to reuse increases in return
       flows before the increase.


       6
          Shortly after the Commission issued its July 2, 1998 interim order, the Foundation sought
judicial review and a declaratory judgment that the Commission’s conclusion as to the legal
character of the effluent after being discharged was erroneous as a matter of law, in violation of the
water code, and made in excess of the Commission’s statutory authority. The district court took no
action on this cause while the permit proceeding was still being pursued to administrative
completion. This lawsuit was eventually consolidated with the lawsuits challenging the final order.

                                                   7
Tex. Water Code Ann. § 11.042(b) (West 2000).

                Although it would seem that the permit granted by the Commission, with the attached

special conditions, is specifically designed to track this legislative authority, all parties acknowledge

that Senate Bill 1 can have no effect on the City’s application because of its grandfather clause.

Section 2.18(b) of the Act states that the article “does not apply to an application for an interbasin

transfer or reuse project using privately owned groundwater received and pending before March 2,

1997. Any subsequent renewals of such applications shall be subject to the provisions of this Act.”

Act of June 1, 1997, 75th Leg., R.S., ch. 1010, § 2.18(b), 1997 Tex. Gen. Laws 3610, 3627

(emphasis added). The Foundation argues that there is no direct statutory authority for the City’s

proposed reuse project because the City applied for the permit to convey and divert in 1995, and it

was still pending before the Commission as of March 2, 1997. The Commission agrees that the

specific procedures prescribed by Senate Bill 1 are inapplicable to the City’s application. The City

also acknowledges that Senate Bill 1 does not apply to its application, and argues that as a result the

Commission’s imposition of the special conditions exceeded its statutory authority and violated the

City’s common-law rights over its captured groundwater.


                                            DISCUSSION

                Because all parties agree that Senate Bill 1 has no bearing on whether the

Commission properly granted the City’s application in this case, the question for this Court is

whether the Commission properly relied on pre-1997 law as its basis to grant the permit.

Specifically, we must decide whether the Commission correctly concluded that the City’s discharged

effluent remains private groundwater that can be diverted without an appropriation permit.

                                                   8
Normally, the orders of an administrative agency are “deemed to be prima facie valid and subject

to review under the substantial evidence rule.” Imperial Am. Res. Fund v. Railroad Comm’n, 557

S.W.2d 280, 284 (Tex. 1977); see Tex. Gov’t Code Ann. § 2001.174 (West 2000); see also H.G.

Sledge, Inc. v. Prospective Inv. & Trading Co., 36 S.W.3d 597, 602 (Tex. App.—Austin 2000, pet.

denied). We review the Commission’s findings of fact for support by substantial evidence and its

legal conclusions for errors of law. Tex. Gov’t Code Ann. § 2001.1747; see H.G. Sledge, 36 S.W.3d

at 602. Therefore, if the Foundation’s substantial rights have been prejudiced because the

Commission incorrectly concluded that the City’s discharged effluent remains private groundwater




       7
           Section 2001.174(2) requires a court to reverse or remand a case for further proceedings

           if substantial rights of the appellant have been prejudiced because the
           administrative findings, inferences, conclusions, or decisions are:

           (A) in violation of a constitutional or statutory provision;

           (B) in excess of the agency’s statutory authority;

           (C) made through unlawful procedure;

           (D) affected by other error of law;

           (E) not reasonably supported by substantial evidence considering the reliable
               and probative evidence in the record as a whole; or

           (F)   arbitrary or capricious or characterized by abuse of discretion or clearly
                 unwarranted exercise of discretion.

Tex. Gov’t Code Ann. § 2001.174(2) (West 2000). Each of these grounds for reversal presents a
question of law, which we review de novo. See Texas Dep’t of Transp. v. Jones Bros. Dirt & Paving
Contractors, 24 S.W.3d 893, 898 (Tex. App.—Austin 2000), rev’d on other grounds, 92 S.W.3d 477
(Tex. 2002).

                                                  9
that can be diverted without an appropriation permit, we must reverse the order granting the permit

to the City.

               In its first issue, the Foundation attacks the validity of the permit on the grounds that

“the water it authorizes the City to withdraw from the river at the diversion point is not the City’s

water but, instead, the state’s water, to which the City has no right absent a surface water-right

appropriation.” The Commission and the City respond that the discharged effluent is derived from

groundwater pumped, or “captured,” from the Edwards Aquifer and therefore the City has the

unrestricted right to transport it to its place of beneficial use by any reasonable means, including by

flowing it down a state-owned water course. According to the Commission and the City, the City

retains absolute ownership over the discharged effluent so long as it demonstrates an intent to reuse

it and not abandon it. Because this case turns on the proper legal characterization of the City’s

discharged effluent, we will begin with a brief summary of pertinent principles of Texas water law.

               Texas has long recognized that a landowner can assert absolute ownership over

groundwater by drilling a water well and capturing it. The common-law rule of capture is based on

the concept that ownership of a migratory resource occurs when one exerts control over it and

reduces it to possession. See, e.g., Pierson v. Post, 3 Cai. R. 175, 178 (N.Y. Sup. Ct. 1805)

(possession of hunted wild animal established when “pursuer manifests an unequivocal intention of

appropriating the animal to his individual use, has deprived him of his natural liberty, and brought

him within his certain control”). The English case of Acton v. Blundell first enunciated a rule of

capture for groundwater as follows:




                                                  10
       [T]hat person who owns the surface may dig therein, and apply all that is there found
       to his own purposes at his free will and pleasure; and that if, in the exercise of such
       right, he intercepts or drains off the water collected from underground springs in his
       neighbor’s well, this inconvenience to his neighbor falls within the description
       damnum absque injuria [an injury without a remedy] which cannot become the
       ground of an action.


152 Eng. Rep. 1223, 1235 (Ex. Ch. 1843). Citing Acton, and specifically relying on the above

passage, the Texas Supreme Court adopted the rule of capture for groundwater in Houston & Texas

Central Railway Co. v. East, 81 S.W. 279, 280 (Tex. 1904) (refusing to recognize tort liability

against railroad company when pumping of groundwater under its own property allegedly dried

neighboring plaintiff’s well). The only express common-law limitations on the rule were that “the

owner may not maliciously take water for the sole purpose of injuring his neighbor, or wantonly and

willfully waste it.” City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798, 801 (Tex. 1955)

(reaffirming rule of capture in Texas). The supreme court later recognized an exception to the rule

for a landowner’s negligence that proximately causes the subsidence of another’s land. See

Friendswood Dev. Co. v. Smith-Southeast Indus., Inc., 576 S.W.2d 21, 30 (Tex. 1978).

               The rule of capture for use of groundwater no longer exists in any state except Texas;

because it allows a landowner to pump as much groundwater as the landowner chooses, despite the

drain on an increasingly scarce resource, the retention of the rule in this state has been the subject

of much comment and controversy. Nevertheless, the rule of capture has been reaffirmed by this

state’s supreme court as recently as 1999. In Sipriano v. Great Spring Waters of America, the court

refused to abandon the rule of capture for the rule of reasonable use. 1 S.W.3d 75 (Tex. 1999).

Although recognizing “compelling reasons for groundwater use to be regulated,” the court concluded


                                                 11
that it would be “improper for courts to intercede at this time by changing the common-law

framework within which the Legislature has attempted to craft regulations to meet this state’s

groundwater-conservation needs.” Id. at 80.8 Nonetheless, “the extensive statutory changes in

[Senate Bill 1], together with the increasing demands on the State’s water supply, may result before

long in a fair, effective, and comprehensive regulation of water use that will make the rule of capture

obsolete.” Id. at 83 (Hecht, J., concurring).

                 Texas law categorizes surface water into one of two general types: diffuse surface

water and water in a watercourse. Domel v. City of Georgetown, 6 S.W.3d 349, 353 (Tex.

App.—Austin 1999, pet. denied). Diffuse surface water belongs to the owner of the land on which

it gathers, so long as it remains on that land prior to its passage into a natural watercourse. Id. (citing

Turner v. Big Lake Oil Co., 96 S.W.2d 221, 228 (Tex. 1936)). By contrast, water in a watercourse

is the property of the State, held in trust for the public. See Tex. Water Code Ann. § 11.021(a) (West

2000);9 Domel, 6 S.W.3d at 353; South Tex. Water Co. v. Bieri, 247 S.W.2d 268, 272 (Tex. Civ.


        8
          The court reasoned that there was no need for it to adopt the rule of reasonable use because
in 1917, after Texas had adopted the rule of capture for groundwater, the Texas Constitution was
amended to place the duty to preserve Texas’s natural resources, including its groundwater, in the
hands of the Texas Legislature. Sipriano v. Great Spring Waters of Am., 1 S.W.3d 75, 77 (Tex.
1999) (discussing Tex. Const. art. XVI, § 59(a)). With the creation of groundwater conservation
districts and the passage of Senate Bill 1, which included a renewed focus on groundwater
management methods, the legislature had acted on its constitutional duty and thus it would be “more
prudent to wait and see if Senate Bill 1 will have its desired effect, and to save for another day the
determination of whether further revising of the common law is an appropriate prerequisite to
preserve Texas’s natural resources and protect property owners’ interests.” Id. at 80.
        9
            Section 11.021(a) of the water code provides:

            The water of the ordinary flow, underflow, and tides of every flowing river,
            natural stream, and lake, and of every bay or arm of the Gulf of Mexico, and the

                                                    12
App.—Galveston 1952, writ ref’d n.r.e.); Goldsmith & Powell v. State, 159 S.W.2d 534, 535 (Tex.

Civ. App.—Dallas 1942, writ ref’d). A watercourse has (1) a defined bank and beds, (2) a current

of water, and (3) a permanent source of supply. See Hoefs v. Short, 273 S.W. 785, 787 (Tex. 1925).

The right to use state water may be acquired by obtaining a permit from the Commission to make

an appropriation. See Tex. Water Code Ann. §§ 11.022, .121 (West 2000). There is no statutory

authority speaking directly to whether private, groundwater-derived effluent, once discharged into

a watercourse, becomes part of the normal flow and thus state water subject to regulated

appropriation.

                 The City and the Commission argue that the rule of capture clearly includes the right

to convey captured groundwater down a state watercourse to the diversion point. In its interim order,

the Commission concluded:


       [The City]’s discharged effluent remains private groundwater when it is discharged.
       City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955); Denis v.
       Kickapoo Land Co., 771 S.W.2d 235 (Tex. App.—Austin 1989, writ denied). This
       conclusion has two assumptions: (1) [the City]’s effluent in fact derives from private
       groundwater, and (2) when any particular effluent is discharged at a given time [the
       City] then intends to reuse the effluent.


On appeal, the Commission continues to rely on this conclusion as the basis for its decision to grant

the permit to the City. The Foundation does not dispute that the effluent is derived from the City’s

private groundwater. But the Foundation argues that the Commission misplaces its reliance on City


         storm water, floodwater, and rainwater of every river, natural stream, canyon,
         ravine, depression, and watershed in the state is the property of the state.

Tex. Water Code Ann. § 11.021(a) (West 2000).

                                                  13
of Corpus Christi and Denis. The Foundation also argues that the City’s intent to reuse its effluent

is a false assumption. We will address City of Corpus Christi and Denis in detail.

                In City of Corpus Christi, the supreme court was called on to construe a statute that

recognized the common-law right to use artesian water off the premises and to transport it in any of

several enumerated ways, including by “river, creek or other natural water course or drain, superficial

or underground channel, bayou, . . . sewer, street, road, [or] highway.” 276 S.W.2d at 800 (quoting

Tex. Rev. Civ. Stat. art. 7602 (Vernon 1925) (repealed)). The City of Corpus Christi and a

landowner contracted to have the landowner furnish the city with water produced from artesian wells

by flowing the wells directly into the Nueces River, which in turn flowed over one hundred miles

into Lake Corpus Christi where the water was conducted to a settling basin for municipal use. Id.

at 799-800. The plaintiffs sued on the ground that the transportation of the artesian water down a

natural stream bed constituted waste because, in the process, up to seventy-four percent of the water

pumped into the river escaped through evaporation, transpiration, and seepage before reaching its

destination. Id. at 800. The plaintiffs relied on the above statute, which defined as “waste” any such

transportation of water “unless it be used for the purposes and in the manner in which it may be

lawfully used on the premises of the owner of such well.” Id. Although the supreme court later

stated that its discussion of the rule of capture in City of Corpus Christi was “incidental to the issue

we decided,” Sipriano, 1 S.W.3d at 77, the court had nonetheless recognized that there was “no

common-law limitation of the means of transporting the water to the place of use.” City of Corpus

Christi, 276 S.W.2d at 802. The court in City of Corpus Christi thus held that it was not waste under

the statute to transport water pumped from artesian wells to a settling basin by flowing it down a


                                                  14
natural stream bed and through lakes so long as the end use was lawful. Id. at 800, 803; see also

Sipriano, 1 S.W.3d at 77-78 (discussing City of Corpus Christi).

               In Denis, the defendant drilled into springs situated on his ranch. 771 S.W.2d at 236.

The springs served as the principal source of water for Kickapoo Creek. Id. The defendant placed

a suction pipe into the underground spring waters, captured the water before it reached the surface,

measured the water, channelled it into the creek where it flowed downstream for more than a mile,

and then withdrew the measured amount for irrigation purposes. Id. Downstream landowners filed

suit pleading that the creek levels were being greatly reduced and that the defendant was unlawfully

appropriating state water. Id.; see Tex. Water Code Ann. § 11.081 (West 2000). This Court held

that the evidence showed that the water was percolating groundwater and, as such, was not state

water if captured before reaching the surface, regardless of whether it contributed “perceptibly” to

the flow of the creek. Denis, 771 S.W.2d at 238. Although we acknowledged that the supreme court

seemed to suggest in an earlier case that the rule of capture might not apply where spring waters

“added perceptibly to the general volume of water in the bed of the stream,” we dismissed that

statement as obiter dicta that was contrary to established Texas law. Id. (quoting Texas Co. v.

Burkett, 296 S.W. 273, 278 (Tex. 1927)).

               Having carefully considered the facts and holdings of City of Corpus Christi and

Denis, we agree with the Foundation that these cases will not support the City’s reuse project. In

City of Corpus Christi, the transportation of the artesian well water was challenged as wasteful; and

in Denis, the downstream landowners argued that the percolating groundwater was nonetheless state

water because it contributed perceptibly to the flow of a creek. But in neither case was the


                                                 15
appropriation challenged on the grounds that, once discharged into a state watercourse, the

groundwater became state water.10 To the extent that the holdings in these cases compel an

interpretation of the rule of capture that gives the owner of the captured groundwater the right to

freely flow it down a state watercourse and then subsequently divert the water without obtaining an

appropriation permit, we believe that this right must be construed narrowly.11

               If the City in this case were immediately discharging or channeling its captured

groundwater into the river after pumping it from the aquifer, and then releasing it downstream to be

diverted at a point where the water would be directed to its place of beneficial use, City of Corpus

Christi and Denis would likely preclude any cause of complaint by the holders of downstream

riparian rights. This is because the City would specifically be exercising its right to transport its

captured groundwater “to the place of use.” City of Corpus Christi, 276 S.W.2d at 802. Here,

however, it is undisputed that the City does not actually need the San Marcos River to literally

transport the discharged effluent to its place of use. Nothing in the administrative record suggests

that the place of use, or “reuse,” is three miles downstream from the discharge point. Rather, once

diverted downstream, the water would be transported by pipeline to a new water treatment plant,



       10
           At least one commentator has expressed surprise with the result in City of Corpus Christi
because “the court did not address the character of the water once it entered the Nueces River
System.” Kevin Smith, Comment, Texas Municipalities’ Thirst for Water: Acquisition Methods for
Water Planning, 45 Baylor L. Rev. 685, 711-12 (1993). “Arguably, diversion of groundwater into
the river bed created a flowing river in an amount sufficient for irrigation and thus, the groundwater
became state water subject to prior appropriation.” Id. at 712.
       11
           Again, we note that in Sipriano, the supreme court stated that the discussion of the rule
of capture in City of Corpus Christi was “incidental to the issue we decided,”which specifically dealt
with whether flowing the water down the river constituted waste. Sipriano, 1 S.W.3d at 77.

                                                 16
where it would be treated to drinking water standards and then returned to the City’s potable water

supply system, which is in reality the “place of use.”

               The Commission and the City argue that there is no principled distinction between

transporting captured groundwater to its place of use, and transporting groundwater-derived effluent

to its place of reuse, because in both instances there is an expressed intent not to abandon the

groundwater at the moment of discharge into the state watercourse. It is undisputed that, once

captured and reduced to possession, the groundwater becomes the City’s exclusive property, with

all the rights incident to it that one might have as to any other species of property. See Burkett, 296

S.W. at 278. Consequently, argue the Commission and the City, the groundwater-derived effluent

remains the City’s property unless it expresses an intent to abandon it. See Texas Water Rights

Comm’n v. Wright, 464 S.W.2d 642, 646 (Tex. 1971) (“Abandonment is the relinquishment of a

right by the owner with the intention to forsake and desert it.”). We disagree.

               In Domel v. City of Georgetown, this Court held in part that because the State had a

right to use a watercourse to transport water without seeking permission from downstream

landowners, the City of Georgetown’s discharge of treated wastewater into the watercourse did not

constitute a taking of the plaintiff’s property so long as pursuant to a state permit. 6 S.W.3d at 359-

60. We premised our holding on the assumption that the municipality’s discharged effluent, partly

derived from captured groundwater, became state water upon entering the watercourse. Id. at 353-

54. In concluding that the State’s right to use a watercourse is the same whether the flow of water

is “natural” or “man-made” effluent, we noted that “[o]nce return flows are given back to a

watercourse, they become part of the normal flow.” Id. at 360; see Tex. Water Code Ann.


                                                  17
§ 11.046(c) (West 2000); see also Bieri, 247 S.W.2d at 272-73 (defendant entitled to appropriate

runoff water in watercourse where water originated as state water and plaintiff showed no evidence

of control over runoff that had drained away; right to the water, “being merely usufructuary, depends

upon possession, and that, after the water has once left the possession of the appropriator, it is lost

beyond recall”).

                Although neither Domel nor Bieri involved a declaration of intent to retain ownership

of groundwater-derived effluent after discharge, we believe that those cases are nonetheless guided

by the principle that, as the Foundation succinctly states in its brief, “[i]ntent does not trump physical

reality in water law.” The Foundation argues that, unlike in City of Corpus Christi and Denis, where

unused groundwater water was delivered downstream to a location where the owner sought to use

it, the City in this case is flowing its previously-used groundwater into a river essentially for

“cleaning” purposes. The administrative record is replete with expert testimony that the effluent

loses its independent characteristics, separate from the state river water, by the time water is diverted

three miles downstream from the discharge point. Thus, because the quality of water being diverted

is better and more suitable for use than the quality of effluent at the discharge point, the City is not

so much seeking to transport the effluent as it seeks to use the river as a preliminary “treatment

barrier.”

                The Commission’s final order contains findings that the diversion of water would

correspond in quantity to the amount of effluent discharged, taking into account transportation

losses. But the Commission did not make specific findings that could rebut the allegation that the

quality of the water being diverted possessed no characteristics of sewage effluent. Nor does the


                                                   18
City attempt to deny on appeal that the primary purpose of diverting water three miles downstream

from the discharge point is to divert water that is cleaner and, consequently, easier to treat than its

used wastewater. It is therefore clear from the record that the City’s reuse project depends on mixing

its effluent with the spring-fed waters of the San Marcos River.

               The Commission and the City respond that the City’s manner of using the river in this

case has no bearing on whether the City should be permitted to divert the approximate quantity of

water that it put into the river because water is fungible. Thus, they argue that the legal character of

the City’s groundwater does not automatically change from private property to state-owned water

upon discharge into the river. For support, they rely on this Court’s opinion in Texas Rivers

Protection Association v. Texas Natural Resource Conservation Commission, 910 S.W.2d 147 (Tex.

App.—Austin 1995, writ denied). In that case, we considered, among other issues, whether the

Commission erred in granting the Upper Guadalupe River Authority (UGRA) a permit to divert

water from the Guadalupe River for the City of Kerrville’s municipal use where the UGRA planned

to store some of the water in an aquifer located below the city. Id. at 150-51. The plaintiffs attacked

the Commission’s findings that water injected into the aquifer would mix only minimally with native

groundwater and thus the water injected into the aquifer will subsequently be available for beneficial

municipal use. Id. at 154-55. We stated:


       We need not determine whether the finding of limited mixing is supported by
       substantial evidence because such a finding is irrelevant to the Commission’s
       ultimate finding. Water is a fungible commodity. UGRA need not extract from the
       aquifer the very same water molecules that it injected into the aquifer. The relevant
       legal requirement is that the water be put to a beneficial use. This, in turn, requires



                                                  19
        a determination that the quantity of water put into the aquifer can be recovered and
        put to such use.


Id. at 155.

               Although we continue to adhere to the proposition that water is a fungible

commodity, the City’s reuse project belies its position that its effluent is freely exchangeable with

the water flowing in the San Marcos River. In Texas Rivers, the quality of water that had been

diverted from the Guadalupe River and injected into the aquifer was of unquestioned quality. See

generally id. at 150, 154-55. In contrast, at the administrative hearing the City acknowledged that

its plan was not viable unless the effluent adequately mixed with the river water while flowing

downstream. The Commission never found otherwise. Thus, as the Foundation aptly puts it,

“[t]hat’s the opposite of fungibility.” Furthermore, although the effluent has been treated prior to

discharge in accordance with state standards, it is undisputed that it is “municipal waste” which the

water code defines as “waterborne liquid, gaseous, or solid substances that result from any discharge

from a publicly owned sewer system, treatment facility, or disposal system.” Tex. Water Code Ann.

§ 26.001(8) (West Supp. 2003). The water code’s definition of “water,” on the other hand, includes

groundwater and surface water but makes no mention of effluent or municipal waste. See id.

§ 26.001(5). We conclude that the City’s effluent is not fungible with the State’s water in the San

Marcos River.12


        12
          In the chapter of the administrative code pertaining to substantive water rights, the
Commission’s definition of “baseline or normal flow” notes that “[a]ccountable effluent discharges
from municipal, industrial, irrigation or other uses of ground or surface waters may be included at
times.” 30 Tex. Admin. Code § 297.1(6) (West 2003); see also Domel v. City of Georgetown, 6
S.W.3d 349, 360 (Tex. App.—Austin 1999, pet. denied) (“Texas law recognizes treated wastewater

                                                 20
                We agree that to abandon its ownership rights over the effluent, the City must do so

voluntarily and intentionally; however, abandonment need not be proved by express declaration, but

may be inferred from the surrounding circumstances. See Raulston v. Everett, 561 S.W.2d 635, 638

(Tex. Civ. App.—Texarkana 1978, no writ). Here, the City cannot deny that it intends to discharge

its effluent into the river. The physical reality of what occurs when the City discharges sewage

effluent into the San Marcos River suggests that the City is voluntarily and intentionally abandoning

its ownership rights over the effluent. See Domel, 6 S.W.3d at 360; Bieri, 247 S.W.2d at 272-73.

As we have explained, the design of the City’s reuse project defeats the notion that the water that the

City intends to divert from the river for reuse is in fact the effluent that the City put into the river at

the discharge point. This is because the discharged effluent is not, in this case, fungible with the

water in the river. By intentionally discharging its effluent into the river, where it eventually

commingles with the State’s water, the City effectively abandons its control over the identifying

characteristics of its property. Thus, despite the City’s declaration of intent to reuse its effluent, our

conclusion that the effluent is not fungible with the river water proves that the City’s discharge of

effluent into a state watercourse constitutes abandonment as a matter of law.




as a valuable resource, just as naturally flowing waters are.”). Thus, we do not mean to conclude
that, as a matter of law, effluent can never be fungible with the waters in a watercourse. Rather,
under the facts of this case, the City’s effluent is not fungible with the naturally flowing waters of
the San Marcos River.

                                                    21
                   Indeed, the common-law right to transport captured groundwater, as illustrated in City

of Corpus Christi and Denis, must be based on the physical control of the captured property rather

than on subjective intent to maintain ownership over it.13 As the Commission itself once concluded:


         Private, percolating spring water which is allowed to enter into a watercourse and
         commingle with State water retains its private property characteristic only if the
         landowner maintains control over the spring water and can identify it both as to
         amount and location in the watercourse. In the absence of this evidence, the private
         spring water which has been allowed to enter a State watercourse and commingle
         with State water therein will be presumed to have become State water . . . .


Tex. Water Comm’n, In the Matter of the Adjudication of the Salt Fork and Double Mountain Fork

Watersheds of the Brazos I Segment in the Brazos River Basin, (Feb. 10, 1981) (emphasis added).

Thus, unless the owner of discharged effluent can identify the location of the effluent in the

watercourse—and divert it before it commingles with state water—it is presumed to become state

water.    The Commission emphasizes that this is a rebuttable presumption.                     However, the



         13
          The common law has long recognized that continued ownership rights over property
acquired by capture depends on maintaining a degree of control. According to the Supreme Court
of Pennsylvania:

              Water and oil, and still more strongly gas, may be classed by themselves, if the
              analogy be not too fanciful, as minerals ferae naturae. In common with
              animals, and unlike other minerals, they have the power and the tendency to
              escape without the volition of the owner . . . . They belong to the owner of the
              land, are part of it, so long as they are on or in it, and are subject to his control;
              but when they escape, and go into other land, or come under another’s control,
              the title of the former owner is gone.

Westmoreland & Cambria Natural Gas Co. v. DeWitt, 18 A. 724, 725 (Pa. 1889); cf. Pierson v. Post,
3 Cai. R. 175, 178 (N.Y. Sup. Ct. 1805) (possession established by “certain control”).


                                                       22
Commission does not point to any findings that explicitly rebut the presumption in this case. Rather,

the Commission only found that the amount of the discharged effluent could be tracked and

identified as it flowed down the San Marcos River to the proposed diversion point.14 In contrast,

there was no question in City of Corpus Christi and Denis that the groundwater being transported

via bed and banks had not been used, was of the purest quality, and entirely fungible with the water

in the respective watercourses. Taking on the function of a pipeline, the bed and banks of the

watercourses in City of Corpus Christi and Denis served as an inexpensive means for the owner of

the captured groundwater to maintain control over a quantity of private property during

transportation. See City of Corpus Christi, 276 S.W.2d at 799-800; Denis, 771 S.W.2d at 236. Thus,


       14
          The Commission explicitly stated in its findings that the monitoring of the effluent in the
river was intended “to allow the City to divert volumes of water that, on a continuing basis,
reasonably correspond with and are attributable to the City’s prior discharges of Edwards Aquifer-
derived groundwater.” (Emphasis added.)

          We also note that the Director of the Commission’s Water Policy and Regulations
Division, specifically referencing the City’s application, concluded that effluent, once discharged
and commingled with river water, becomes state water. He stated that “the water was not put into
the stream with the initial intent to maintain control and for reuse by the City” and thus

            it is questionable whether to treat this as a “bed and banks” application as a
            matter of law and policy. Since reclassifying the discharged water from state
            water to privately-owned developed water would be inconsistent with the
            agency’s past decisions in granting water rights on the San Marcos River . . .
            it is recommended it be reconsidered as an application for a new appropriation
            of state water.

The Commission cautions us from giving too much weight to this unofficial “opinion.” See City of
Frisco v. Texas Water Rights Comm’n, 579 S.W.2d 66, 72 (Tex. Civ. App.—Austin 1979, writ ref’d
n.r.e.) (“It is the order of the agency that is reviewed by the courts, not the recommendation of the
staff.”). Nonetheless, the Director’s statements—especially the undisputed statements regarding past
agency practice—can be considered by this Court for its evidentiary value like any other evidence.
See id.

                                                 23
those cases support the narrow proposition that the bed and banks of state watercourses can be used

to control captured water as an identifiable quantity of fungible property as it is transported to its

place of use.

                The administrative record reflects that for many years the City’s discharged sewage

effluent has been a source of the “ordinary flow” of the river and therefore property of the State. See

Tex. Water Code Ann. § 11.021; see also Domel, 6 S.W.3d at 360. The City’s attempt to now re-

characterize the effluent with a declaration of intent to reuse it cannot recompense for the City’s

inability to control it as it mixes and becomes indistinguishable from public waters. The City

initially possessed the groundwater by capture and thus the City’s common-law ownership rights

depend on maintaining control over that migratory resource. But the non-fungibility of the effluent

with state water in this case prevents the City from controlling the legal character of the effluent after

it is discharged into the San Marcos River. Thus, notwithstanding the City’s stated intent not to

abandon its effluent, the physical reality of the City’s reuse project leads us to hold that the effluent

is abandoned to the public domain once the City discharges it into the San Marcos River where it

is admittedly commingled and diluted by that state watercourse. Accordingly, we sustain the

Foundation’s first issue.

                In regard to the disposition of this appeal, we observe that it is undisputed that the

findings and conclusions of the final order granting the City a permit to convey and divert water

depended on the Commission’s error of law. After an examination of the record as a whole, it is our

view that the substantial rights of the Foundation were prejudiced because the riparian rights of its

members would be affected by the City’s unlawful diversion of water from the San Marcos River.



                                                   24
As a result, we must reverse the judgment of the district court and render judgment that the order of

the Commission granting the permit be vacated. See Tex. Gov’t Code Ann. § 2001.174; H.G.

Sledge, 36 S.W.3d at 602.

                Furthermore, we order that the City’s application to convey and divert water be

denied. At the time that the City filed its application, there was no explicit statutory authority on

which the Commission could rely in granting the permit. Rather, the Commission implied its

authority from its general powers as provided in sections 5.012 and 5.102(a) of the water code. See

Tex. Water Code Ann. §§ 5.012, .102(a). Although the Foundation and the City both challenge the

Commission’s reliance on these provisions, albeit for different reasons, we reserve that question

because there now exists an explicit statutory mechanism by which the Commission can grant a bed

and banks permit for a reuse project using privately owned groundwater. See id. § 11.042(b). Thus,

we believe it more prudent that, should it pursue a reuse project, the City do so within the framework

of Senate Bill 1 rather than attempting to rely on an interpretation of the rule of capture as it existed

before that legislative enactment. See Sipriano, 1 S.W.3d at 80.


                                           CONCLUSION

                We hold that the Commission erred in its interim order by concluding that the City’s

effluent remains private groundwater when it is discharged into a state watercourse. The City’s

common-law rights over its captured groundwater, as they existed prior to the enactment of Senate

Bill 1 in 1997, cannot be expanded to permit the City to discharge its effluent into the San Marcos

River and then divert water downstream without having obtained an appropriative right over that

state water. It is unnecessary to consider the other issues raised by the appealing parties.

                                                   25
Accordingly, we reverse the judgment of the district court and render judgment that the order of the

Commission granting the permit be vacated and the City’s application be denied.




                                              __________________________________________

                                              W. Kenneth Law, Chief Justice

Before Chief Justice Law, Justices B. A. Smith and Puryear

Reversed and Rendered

Filed: August 29, 2003




                                                26
