ALJDEC decisions subject to certification as final

20A-AWS01-DWR · Department of Water Resources · 2023-06-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the Arizona Department of Water Resources' Denial of Douglas Ranch's Application for an Extension of Analysis of Assured Water Supply, Application No. 28-401645.0000

No. 20A-AWS01-DWR

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: April 3, 2023 and April 4, 2023

APPEARANCES: Sean T. Hood, Esq. and Nyla Nox, Esq. appeared on behalf of Appellant HHC Douglas Ranch Member, L.L.C. Emily Petrick, Esq. and Ayesha Vohra, Esq. appeared on behalf of the Arizona Department of Water Resources.

ADMINISTRATIVE LAW JUDGE: Velva Moses-Thompson

_____________________________________________________________________

FINDINGS OF FACT

1. On May 12, 2004, the Arizona Department of Water Resources (ADWR) issued an Analysis of Assured Water Supply (Analysis) for a development called Douglas Ranch Phases 1, 2, 3, 4, and 5 to HHC Douglas Ranch Member, LLC’s predecessor property owner, Sonoran West Properties, L.L.C. See Exhibit 2, pgs. 5-6.

2. HHC Douglas Ranch Member L.L.C. (Douglas Ranch) currently owns the lands described in Phases 1 through 5 and is an Analysis holder of the Initial Analysis pursuant to Arizona Administrative Code (A.A.C.) R12-15-701(8).

3. The Initial Analysis was issued for lands as shown in Exhibit T. See Transcript (Tr.) 292:15-295:6. The Initial Analysis included a finding that 23,658 acre-feet per year of groundwater was physically available for 100 years. See Exhibit 2, pgs. 5-6.

4. On or about March 26, 2009, ADWR issued Conditional Analysis of Assured Water Supply No. 28- 401645.0000 to Douglas Ranch for Phases 5, 6, 7, 8, and 9 (Conditional Analysis). See Exhibit I. The Conditional Analysis provided that on the basis of Lower Hassayampa Sub-basin Hydrologic Study and Computer Model (Brown & Caldwell, 2006), (hereinafter “2006 Model”), the groundwater and effluent identified in the document would be physically available provided that the conditions in the document were met. The Conditional Analysis provided, in relevant part, as follows:

Physical, Continuous, and Legal Availability of Water for 100 Years

.......................

On the basis of the hydrologic study submitted by the Town of Buckeye (Hassayampa Study) on behalf of the Lower Hassayampa Sub-basin Hydrologic Study Basis Study Participants (Study Participants) and the Department’s review, the Department has determined that 26,075.08 acre-feet per year of groundwater and effluent will be physically available, provided certain conditions are met. This volume is equal to the applicant’s annual estimated water demand for Douglas Ranch phase 6, 7, 8, and 9 under this analysis.

.......................

5. On or about March 17, 2010, Douglas Ranch submitted a Request for Waiver of the hydrologic study set forth in Condition 1 and addressed in Conditions 2 and 3 of the Conditional Analysis. Douglas Ranch explained that the reason for the request was the current economic climate. Douglas Ranch acknowledged that all other conditions of the Conditional Analysis would remain. Douglas Ranch further reserved the right to submit additional studies under Conditions 4 and 5 to demonstrate that all or a portion of the remaining volume under the Conditional Analysis was physically available. Douglas Ranch’s March 17, 2010 Request for Waiver of Condition 1 provided, in relevant part, as follows:

We respectfully request the waiver of Condition 1 because, due to the current economic climate, we believe that our resources are better deployed elsewhere. We are operating under the assumption that this request, if granted, would render Condition 2 moot, but all other terms and conditions of the [Conditional Analysis] would remain in full force and effect. In particular, we reserve the right to submit additional studies in the future based on the Conditions 4 and/or 5 of the [Conditional Analysis], demonstrating that all or a portion of the remaining volume under the [Conditional Analysis] is physically available.

6. On March 25, 2010, ADWR waived Condition 1. ADWR’s waiver provided in relevant part, as follows:

The Department is in receipt of your request to waive the requirement to submit a joint supplemental hydrologic study (“Study”) that is set forth in Condition 1 and also addressed in Conditions 2 and 3 of the [Conditional Analysis] issued to Douglas Ranch on March 26, 2009. The requirement is hereby waived. This waiver renders Condition 2 moot. All other terms and conditions of the AAWS remain in full force and effect.

7. The Waiver Request did not include any request that ADWR determine that specific volume of groundwater or specific volume of effluent was physically available under the Conditional Analysis. See Exhibit ADWR-M.

8. ADWR’s waiver did not include any determination that a specific volume of groundwater or a specific volume of effluent was physically available under the Conditional Analysis. See Exhibit N.

9. On or about February 22, 2018, Douglas Ranch filed a request for an Extension of the Conditional Analysis for Douglas Ranch, Phases 6, 7, 8, and 9.

10. On or about August 27, 2020, through an e-mail to the Department, Douglas Ranch acknowledged that the Conditional Analysis “conditionally reserved a specific amount of water.” See Exhibit 71.

11. On or about August 28, 2020, ADWR denied the request for an Extension of the Conditional Analysis. ADWR found that there was no time period to extend, pursuant to subsection [A.A.C. R12-15-703(H)], because Douglas Ranch did not demonstrate a volume of groundwater to be physically available for the proposed development or that any assured water supply criterion was satisfied with respect to the proposed development. The August 28, 2020 denial provided, in relevant part, as follows:

The Conditional Analysis states that 26,075.08 acre-feet per year of groundwater and effluent will be physically available provided that certain conditions are met. One of the conditions, Condition No. 1, required Douglas Ranch to submit, before March 26, 2010, a joint supplemental hydrologic study with certain other conditional analysis holders demonstrating the amount of groundwater that would be physically available for 100 years. Pursuant to Condition No. 3 of the Conditional Analysis, upon approval of the joint supplemental hydrologic study, the Department was to issue a letter to Douglas Ranch identifying, among other items, the amount of groundwater that would be physically available for 100 years for purposes of future certificates of assured water supply applications relying on the Conditional Analysis.

On March 17, 2010, Douglas Ranch requested that the Department waive the requirement to submit a joint supplemental hydrologic study described in Condition No. 1 of the Conditional Analysis. By letter dated March 25, 2010, the Department responded to the request by waiving the requirement to submit a joint supplemental hydrologic study set forth in Condition No. 1. The letter provided that all other terms and conditions in the Conditional Analysis remain in effect. One of the conditions remaining in effect is Condition No. 5, which provides that at any time during the term of the Conditional Analysis, Douglas Ranch may submit an additional hydrologic study to demonstrate that, based on changed conditions, groundwater is physically available. Douglas Ranch never submitted a hydrologic study to the Department for review during the term of the Conditional Analysis.

The Extension Application was filed pursuant to R12-15-703(H), which provides that an analysis holder "may apply to the Director for a five-year extension of the time period in subsection (F) of this Section by submitting an application on a form prescribed by the Director no earlier than36 months before the end of the time period and no later than 30 days before the end of the time period." Subsection (F) of Rl2-15-703 provides as follows:

F. For 10 years after the Director issues an analysis, or a longer period allowed under subsections (H) or (I) of this Section: 1. If groundwater is a source of supply in the analysis and the applicant demonstrates that groundwater is physically available under subsection (E)(1) of this Section, the Director shall consider that supply of groundwater reserved for the use of the proposed development in subsequent determinations of physical availability pursuant to Rl2-15- 716(8). 2. If an analysis holder applies for a certificate for a subdivision located on land included in the analysis, the Director shall presume that a criterion demonstrated in the analysis remains satisfied with respect to the subdivision unless the Director has received new evidence demonstrating that the criterion is not satisfied. If the Director issues the certificate, the Director shall reduce the volume of groundwater reserved pursuant to subsection (FXl) of this Section by the amount of the estimated water demand for the certificate that will be met with groundwater.

Reading subsections (F) and (H) of R12-15-703 together, it is clear that the time period that may be extended pursuant to subsection (H) is the time period in which: (1) the Director must consider that groundwater demonstrated by the analysis holder to be physically available is reserved for the use of the proposed development; md (2) the Director must presume that a criterion demonstrated to be satisfied in the analysis remains satisfied with respect to the subdivision, unless the Director has received new evidence demonstrating that the criterion is not satisfied. Because Douglas Ranch did not demonstrate a volume of groundwater to be physically available for the proposed development or that any assured water supply criterion was satisfied with respect to the proposed development, there is no time period to extend pursuant to subsection (H). For that reason, the Conditional Analysis may not be extended, and the Department must deny the Extension Application.

12. On or about September 29, 2020, Douglas Ranch filed an appeal to the August 28, 2020 Denial.

13. The matter was referred to the Office of Administrative Hearings for an evidentiary hearing.

14. On November 5, 2020, ADWR issued a Notice of Hearing setting the matter for hearing on January 26 – 27th, 2021, at the Office of Administrative Hearings in Phoenix Arizona. The Notice of Hearing provided that the issue set for determination was, “Whether the Department properly denied Douglas Ranch’s application for an Extension of Analysis of Assured Water Supply pursuant to A.A.C. R12-15-703.”

15. A hearing was held on April 3, 2023 and April 4, 2023.

16. At hearing, Douglas Ranch presented the testimony of Heath Melton, Vice President of Douglas Ranch, James Kenny, President of El Dorado, Linda Chenney, Vice President of El Dorado, and Amy Hudson, Ph.D. Douglas Ranch submitted Exhibits DR-1 through DR-397. ADWR presented the testimony of David McKay, manager of the Recharge and Assured and Adequate Water Supply Programs at ADWR and Emily Lodolce, the Groundwater Modeling Section Manager at ADWR. ADWR submitted exhibits ADWR-A through ADWR-U.

17. Dr. Amy Hudson is a hydrogeologist and geochemist for an environmental consulting firm. Dr. Hudson holds a Ph.D. in geoscience, with a specialty in hydrology and geochemistry. Dr. Hudson holds a master's degree in environmental science and engineering. Dr. Hudson holds a Bachelor’s degree in environmental science.

Dr. Hudson reviewed the 2006 Model. Dr. Hudson opined that the 2006 Model shows that there was sufficient water that would be physically available for 100 years.

18. Emily LoDolce is the manager of the groundwater modeling at ADWR. Ms. LoDolce obtained a Bachelor's of science in civil engineering from Arizona State University. Ms. LoDolce holds a Master’s of Science in civil engineering with a water focus from the University of Colorado-Boulder. Ms. LoDolce is registered as a professional civil engineer in four states, Colorado, which was issued in 2012; Arizona, which was issued 2017; and Nevada and New Mexico, both issued in 2019.

Ms. LoDolce, expressly disagreed with Dr. Hudon’s conclusion that the 2006 Model demonstrated that sufficient groundwater was physically available for the proposed development for Assured Water Supply purposes. Ms. LoDolce concluded that all simulations in the 2006 Model fail to meet Assured Water Supply criteria due to unmet demands in each simulation.

19. Mr. McKay opined that the Conditional Analysis should not have been issued without a demonstration that sufficient supplies of water are physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in R12-15-716. Mr. McKay explained that ADWR waived the one-year requirement to submit a supplemental hydrologic study merely to allow additional time for Douglas Ranch to affirmatively demonstrate whether and how much of the 26,075.08 acre-feet per year of groundwater and effluent referenced in the Conditional Analysis was physically available as groundwater and physically available as effluent. See Exhibit I, M, N, and Tr. 111:1-17.

20. Douglas Ranch argued that when ADWR waived Condition 1, none of the other conditions were mandatory or a prerequisite to an extension. Douglas Ranch contended that ADWR is required to be transparent in their licensing requirements.

21. Douglas Ranch contended that it relied on the Conditional Analysis believing that it had a reservation of 26,075.08 acre-feet per year of groundwater and effluent in making substantial capital investment in the development. However, the preponderance of the evidence shows that Douglas Ranch was aware that the Department had not reserved 26,075.08 acre-feet per year of groundwater and effluent. The Conditional Analysis provided that on the basis of the 2006 Model, on behalf of the study participants and ADWR’s review, “[ADWR] has determined that 26,075.08 acre-feet per year of groundwater and effluent will be physically available, provided certain conditions are met.” In Douglas Ranch’s Request for Waiver of Condition 1, Douglas Ranch reserved “the right to submit additional studies in the future based on the Conditions 4 and/or 5 of the [Conditional Analysis], demonstrating that all of a portion of the remaining volume under the [Conditional Analysis] is physically available.” See ADWR-M. In Douglas Ranch’s Request for Waiver of Condition 1, Douglas Ranch wrote that it was operating under the assumption that while Condition 1 was waived and Condition 2 was rendered Moot, “all other term and conditions of the [Conditional Analysis] would remain in full force and effect.” Finally, ADWR’s Waiver of Conditional 1 provides that Condition 2 is moot and that “all other terms and conditions of the [Conditional Waiver] remain in full force and effect.” See id.

22. Douglas Ranch never met any of the conditions in the Conditional Analysis and ADWR never determined that any amount of groundwater was physically available.

CONCLUSIONS OF LAW

1. Subdivision developers must demonstrate a 100-year Assured Water Supply before new homes in Arizona are sold to homebuyers. See Arizona Revised Statutes (A.R.S.) § 45-576. New subdivisions can meet this requirement by obtaining a commitment of service from a water provider with a Designation of Assured Water Supply or by obtaining a Certificate of Assured Water Supply for the subdivision.

See A.R.S. § 45-576; A.A.C. R12-15-704 and 710.

2. An Analysis is a determination under A.A.C. R12-15-703 that is available to developers to preliminarily demonstrate that one or more of the seven Assured Water Supply criteria are met before applying for a Certificate of Assured Water Supply.

See A.A.C. R12-15-703 and 704. The seven Assured Water Supply criteria area: (1) physical availability, (2) continuous availability, (3) legal availability, (4) water quality, (5) financial capability, (6) consistency with the Active Management Area management goal, (7) and consistency with the Active Management Area management plan.

3. If an applicant demonstrates that “[s]ufficient supplies of water are physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in A.A.C. R12-15-716”, ADWR shall issue an Analysis to the applicant.

4. The ADWR Director must issue an analysis if an applicant demonstrates one or more of the following:

1. Sufficient supplies of water are physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in R12-15-716.

2. Sufficient supplies of water are continuously available to meet the estimated water demand of the development for 100 years, according to the criteria in R12-15-717.

3. Sufficient supplies of water are legally available to meet the estimated water demand of the development for 100 years, according to the criteria in R12-15-718.

4. The proposed sources of water are of adequate quality, according to the criteria in R12-15-719.

5. Any proposed groundwater use is consistent with the management plan in effect at the time of the application, according to the criteria in R12-15-721.

6. Any proposed groundwater use is consistent with the management goal, according to the criteria in R12-15- 722.

5. The decision on whether or not to issue an Extension of the Conditional Analysis lies within ADWR’s jurisdiction.

6. Douglas Ranch bears the burden of proof to establish that it has met statutory and regulatory requirements to be issued an Extension of the Conditional Analysis by a preponderance of the evidence. ADWR bears the burden to establish affirmative defenses by the same evidentiary standard.

7. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

8. The proponent of a legal argument must establish the applicability and correctness of the argument.

9. A.A.C. R12-15-716 (F) provides:

For 10 years after the Director issues an analysis, or a longer period allowed under subsections (H) or (I) of this Section:

1. If groundwater is a source of supply in the analysis and the applicant demonstrates that groundwater is physically available under subsection (E)(1), the Director shall consider that supply of groundwater reserved for the use of the proposed development in subsequent determinations of physical availability pursuant to R12-15-716(B).

2. If an analysis holder applies for a water report for a subdivision located on land included in the analysis, the Director shall presume that a criterion demonstrated in the analysis remains satisfied with respect to the subdivision, unless the Director has received new evidence demonstrating that the criterion is not satisfied. If the Director issues the water report, the Director shall reduce the volume of groundwater reserved pursuant to subsection (F)(1) of this Section by the amount of the estimated water demand for the water report that will be met with groundwater.

10. A.A.C. R12-15-716 (H) provides:

The analysis holder may apply to the Director for a five-year extension of the time period in subsection (F) of this Section by submitting an application on a form prescribed by the Director no earlier than 36 months before the end of the time period and no later than 30 days before the end of the time period. If an extension is granted, the analysis holder may apply to the Director for an additional five-year extension by submitting an application on a form prescribed by the Director no earlier than 36 months before the end of the extended time period and no later than 30 days before the end of the extended time period. The Director shall extend the time period for no more than two successive five-year periods under this subsection if the analysis holder demonstrates one of the following:

1. The analysis holder has made a substantial capital investment in developing the land included in the analysis.

2. The analysis holder has made material progress in developing the land included in the analysis. 3. Progress in developing the land included in the analysis has been delayed for reasons outside the control of the analysis holder.

11. ADWR has contended that the issue of whether the 2006 Model demonstrated physical availability of 26,075.08 acre-feet per year of groundwater and effluent is not reviewable by this tribunal because Douglas Ranch failed to raise the issue in its Notice of Appeal. However, the Administrative Law Judge concludes that the argument is relevant to the issue of the appropriateness of the denial of the application for Extension of the Conditional Analysis. Nevertheless, the Administrative Law Judge concludes that the issue of whether the 2006 Model demonstrated physical availability of 26,075.08 acre-feet per year of groundwater and effluent is not reviewable because Douglas Ranch had the opportunity to file an appeal when ADWR determined that the 2006 Model did not demonstrate 100 years of physical availability through the Conditional Analysis. Douglas Ranch failed to timely request such an appeal.

See Exhibit ADWR-B2, pg. 4.

12. Even if this tribunal had jurisdiction to review the issue of whether the 2006 Model demonstrated physical availability of 26,075.08 acre-feet per year of groundwater and effluent, Douglas Ranch has failed to establish such physical availability by a preponderance of the evidence.

13. Douglas Ranch has contended that it relied on the Conditional Analysis believing that it had a reservation of 26,075.08 acre-feet per year of groundwater and effluent in making substantial capital investment in the development. However, the preponderance of the evidence shows that after Condition 1 was waived, Douglas Ranch was aware that it would be required to demonstrate that supplies of water were physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in A.A.C. R12-15-716.

14. Even if Douglas Ranch had established the elements of equitable estoppel in this matter, the application for Extension of the Conditional Analysis must not be granted. In Valencia Energy Co. v. Arizona Dep’t of Revenue, 191 Ariz. 565, 959 P.2d 1256, 1267-68 (1998), the court held that “estoppel may apply against the state only when the public interest will not be unduly damaged and when its application will not substantially and adversely affect the exercise of government powers.” The primary purpose of A.R.S. § 45-576 and the administrative regulations promulgated thereunder are to protect consumers by diminishing the likelihood that land will be sold or leased to the public where inadequate water supplies exist to serve the proposed uses. Therefore, ADWR is not estopped from denying Douglas Ranch’s application for an Extension of the Conditional Analysis. Granting an Extension of the Conditional Analysis without a showing that supplies of water are physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in A.A.C. R12-15-716, would be contrary to the public’s interest.

15. Douglas Ranch has contended that the Conditional Analysis is an Analysis of Assured Water Supply under the applicable regulations, and therefore, the extension request should have been automatically granted under A.A.C. R12-15-703 (H)(1), because Douglas Ranch established that it made a substantial capital investment in developing the land included in the Conditional Analysis. Although A.A.C. R12-15-703 (H)(1) provides that the ADWR Director shall extend the time period for no more than two successive five year periods if the analysis holder shows analysis holder has made a substantial capital investment in developing the land included in the analysis, there was no time period to extend in this case because Douglas Ranch failed to establish that ground water was available under A.A.C. R12-15-703(E)(1), which is required under A.A.C. R12-15-703(F)(1).

16. Douglas Ranch has contended that after Condition 1 was waived, no other conditions remained as a prerequisite to obtaining an extension. See Douglas Ranch’s Post-Hearing Brief, pgs. 13-15 and 23-26. The Administrative Law Judge concludes that Douglas Ranch was required to meet the requirements of A.A.C. R12-15-703(E)(1) under the Conditional Analysis after Condition 1 was waived. Additionally, even if no other conditions remained as argued by Douglas Ranch, an Extension of Conditional Analysis may not be granted under A.A.C. R12-15-703 without a demonstration that sufficient supplies of water are physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in A.A.C. R12-15-716, pursuant to A.A.C. R12-15-703(E)(1). See A.A.C. A.A.C. R12-15-716(F) and (H).

17. ADWR never made a finding that the 2006 Model established that supplies of water were physically available to meet all or part of the estimated water demand of the development for 100 years, according to the criteria in A.A.C. R12-15-716.

18. For the foregoing reasons, Douglas Ranch has not shown that ADWR erred by failing to grant its request for Extension of the Conditional Analysis of an Assured Water Supply.

RECOMMENDED ORDER

For the foregoing reasons, IT IS ORDERED dismissing Douglas Ranch’s appeal.

IT IS FURTHER ORDERED affirming ADWR’s decision denying Douglas Ranch’s Application for Extension of the Conditional Analysis of an Assured Water Supply.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be forty (40) days from the date of that certification.

-54864001

001

-137160-45720000Done this day, June 5, 2023.

/s/ Velva Moses-Thompson

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile to:

Thomas Buschatzke , Director

Department of Water Resources

By: OAH Staff