H.B. 494 Transfer of Water Interests: transcript

Uh, thank you. Uh, this is a bill that, uh, was brought by the Farm Bureau, and I'd like to ask, uh, Mr. Peterson, Warren Peterson, if he's online to, uh, speak to the bill, or, or I'll have the state water engineer if he's not immediately available to start. Or then, Warren, are you online? We've got Warren. Yeah, we've got him. Should I go to him or have you either, do you want me to, or, or I'll start with the, the state engineer here.

So, good morning. Um, Theresa Wilhelmson, state Engineer and Director of the Division of Water Rights. And maybe I'll just start with, um, thinking both of the Owens's, um, for, um, taking this bill on, um, it was an issue that we actually had been working on for almost over a year. And, um, there was a priority, a bill available to try and address part of the issue. And keeping in mind where this comes from, we have, there's a difference between a water right, and a share of stock. Um, the water rights and water right title are updated through the state engineer's office, but shares of stock are really handled through an, the companies, whether it's an irrigation company or a water company. And the only time that a share comes, uh, kind of in the purview of the state engineer is if there's an action, like a change application or a non-use application that's filed in the state engineer's records that's based on those shares of stock. Then we give it a water right number. But ultimately, the ownership for those shares of stock are handled by those companies. And what we've done with, um, this bill is really isolated this year to how a company handles title. And then what we're hoping to bring back next year is a modernization of how the state engineer updates title on the state engineer's records when it's based on a sheriff's stock. So it's kind of two separate things. Um, but this is really addressing shares of stock by the company. And I know Warren was gonna talk more about that. And do you want us explain this, the second amendment to it, Or? Oh, so the, yeah, the Second Amendment, um, it basically, as we were starting this effort, we had both of those, um, tied together, the updates in the state engineer's office and the updates with the company. Um, we had changed the word diligence in one section of that, um, um, I think it was 73, 1 10 or one 11. Um, and we didn't catch it in the other two. So we're trying, we're changing it back to the original language. Um, I, I believe that was Representative Chew who caught that correction.

Thank you, Representative Owens. Mr. Chair shall proceed. Are you able to hear me? Yes, we can hear you. Go ahead. Very good. Thank you. Now, this, there, there's been confusion over the years just exactly what the state engineer said between water rights and water shares. And we wondered why the courts kept getting tangled up in trying to make water shares part of an interest in land water shares are really and truly just a share of corporate stock. And the, the stock allows the shareholder to receive delivery of water, but it doesn't give the stockholder rights or title interest in that, uh, in that water, right? But the courts kept tangling up and we finally looked at it and saw that the language in the existing statute, uh, the water, trans water share shares in the water company transfer provisions were over in the water code instead of in the corporate code. So what we've done here is just move them from the water code over into the corporate code, because these share these water companies, they are nonprofit corporations, uh, governed under, um, title 16, chapter six A of the, the Utah Nonprofit Corporation Act. So that's really what this is all about. And then just to make it so the water buffaloes could still find where to we, we put some cross references in there between the corporate code and the water code so that people can at least see where that connecting point is. So the, the bill is really that simple. Uh, it, it affects a lot of companies. I mean, we've got 1200 of these companies approximately across the state. The state engineered tracks those because of a prior canal safety bill, actually. So we, we know there's a lot of companies, uh, getting this right is important to them. It's important to banks that loan money based on these shares and so on. So it's just a, a, a cleanup to make sure that we're using proper procedures to transfer these, rather than getting 'em snarled up in courts as how, how do you transfer stock while you transfer stock by filling out the paperwork and going through the steps with the water company. And then the water company keeps track of who owns those shares rather than that being an obligation to the state engineer. I, I think that's a fair summary of the bill.

You're quiet. Right. And I'm, I apologize that I have to be coached on that all the time. The good representative from Richfield has done so before too. My name is Warren Peterson. I'm speaking today on behalf of Utah Farm Bureau Federation, and I'm speaking from my home in Oasis, Utah. Thank you for allowing that convenience.

Sorry about that interruption, Mr. Chair. I was gonna just conclude by saying I've had deja vu with this bill 'cause it's already passed the Water Task Force and the Legislative Water Development Committee in the last couple weeks. So I keep thinking, I thought I presented that bill. But anyway, that concludes the presentation. Thank you.

Thank you, Mr. Chair. Thank you, Mr. Chair. Come on. There we go. Thank you, Mr. Chair. And I appreciate the, and I apologize for, uh, both Mr. Peterson, the state engineer, the drafting attorney, the sponsor, and, uh, we worked on this over the weekend. I appreciate you taking time to, but we never did quite all get everything together. I've got some concerns still with this bill. And, uh, what my concerns are is, uh, you know, in lines 55 through 60, it talks about that, uh, if, uh, if I'm gonna sell some of my shares and, and, and, uh, Warren or, or Theresa, either one of you guys, uh, I know we've talked a little bit, but I haven't really got my, my fingers around this. If I've got some shares in, uh, if there's a, if there's a company out there, excuse me, if there's a company out there that does, that's over a thousand acres, it's got 10, uh, major shareholders, all of 'em are a hundred acres each. And just kind of make a, a simple explanation here, or what I think simple, but it's kind of complicated. And, uh, I decide that I can, uh, you know, water bank, 40% of my, uh, of, uh, and I'm one of the, one of the, one of the 10 shareholders. I've got a hundred acre farm and I decide I wanna, I wanna water bank 40% because I think I can get by 60% of the water the kind of crops I'm gonna adjust to and use. And, um, and so, uh, after, you know, four or five years of, of, uh, leasing that water out, I, I figured, oh, I can, I can get by without it. I wanna sell, uh, those 40% and that 40% is, is designated to a certain acreage, 40 acres on my a hundred acre farm. And, uh, but I've gotta pivot that irrigates the whole thing that irrigates the whole farm. And, uh, I'm just, uh, and, and I, I really, I really adhere to the, the fact that the water goes with the land. But, uh, if I specify 40 of those acres, that, does that mean I can't use my pivot across those 40 acres because I've sold the water off from it, even though I have been leasing that water? And the water banking system does, uh, does, is my, uh, question making any sense to you?

Yeah, Mr. Chair, go ahead. Um, so it, it does make sense. Um, and maybe I'll try to answer it by addressing what these lines do versus what, um, the action on the ground and selling of that water those shares may do on the state engineers, um, uh, kind of the water, right? So in these sec, the lines that you referred to in the corporate code, um, in my mind, having the company know where those shares are attached, help protect you as a shareholder so that if you do lease those shares to somebody else, they can't just, um, potentially claim that they're pertinent to a different parcel of land. And when that land sells, have then an issue with where did the shares go, because they are your shares. So I think having that close connection with this language of the company, knowing where those shares are to be used or where they're somewhat attached, and I don't wanna use the word pertinent, 'cause that means something different in a water right realm. Um, if you have the situation that you're talking about, that you're using the shares, and now you wanna sell them, and the person moved them somewhere else, then they would come to the state engineer's office and file a change under application under 73 3, 3 0.5, which is the shareholder change. The company signs on that change, and then we evaluate that application. But you're gonna have to give something up because you've sold a piece of that water. So you will have to retire some acreage somewhere that will ask you to declare where that is being retired. And then we change the records of the company to show that new place of use. So there's kind of two separate things here that are happening.

I understand that, but this still leaves us with the dilemma. I mean, if I, if I, uh, if I participate in a program like what's going on with the Colorado River and, uh, you know, the demand management or the S-C-C-P-P or whatever all that stuff is, and, uh, and, and I'm only raising grain and I figure I can get by on, on 60% of my water, I don't wanna give up. I don't want to have to say that I'm not going to irrigate a certain portion of my land because I have, uh, have, you know, removed the water off from it. I'm only removed the percentage, not the acreage. And that I have a dilemma on this right there. I don't, I don't see those lines the way I read them say, I have to specify the acreage that I am, uh, removing the water from, and I'm not removing water from at all. I wanna only remove a a percentage. So that is, is my dilemma on this, uh, on that part of this bill. There's another part that, that I've got a little concerned. And I, like I said, I, I didn't get into this deep enough until I was out checking my ranges and in and outta service talking to the drafting attorney. And, and I appreciate the sponsor coming on and, uh, helping with it. But, uh, I've got another part that I'm concerned about. And that's the part where it says that it's, uh, according to the shareholders' rules, not the, not the state engineer's office. I can't remember which lines and exactly what that we have to, uh, anyway, this Representative Chew. Maybe there needs to be some more work done on it sounds Like. Well, what my concern is, look at where we're at in the, in the session, and I don't wanna hold this up. This is an important, an important bill. It's been being talked about quite a bit, but as I've got into it just a little bit, I, I am really concerned about the, uh, those two questions, Mr. Mr. Chair.

I could respond to the both of those questions if you would. You can too, if You would like. I would appreciate that. Go

I don't know if my video's failed or not. It's not showing on my screen, but I'll, I'll go ahead. Uh, first of all, I, I would suggest to, to Representative Chew that he's, he's, he, he, he's, he, he's mi mixing. He's, he's mixing sheep and herefords here. You, you're, you're we're talking about this at two different levels. Um, what, what, what I'm saying is you got two different species of things going on here. One of 'em is the water comp within the water company. The other is the water rights that are administered by the state engineer. This bill doesn't address administration of water rights. You know, can you use that 40% or not? That would be a state engineer's question. And, and a water rights question. What the language you've, you've pointed out at 55 through 60 is about, is allowing a water company so that we have local control. The water company in their articles of incorporation and bylaws can spell out if water has to be attached to a piece of property or not. There are very few water companies in the state that do that. And the ones that do are, are those water companies that really aren't in the ag business. They're in the business of supplying water to residential places. So that language, at 55 through 60, is designed to allow those companies to say, if you own this, this house, and we have a connection providing water to that house, or even a townhouse or something of that sort, we can specify that that's the only place you can use your water. But we have to do it in the articles and bylaws. It's not done in the dark. It's done openly with the shareholder's participation. But on, on most companies, the, the type of restrictions that you're concerned about would, would not even apply. I, I hope that helps.

So, Mr. Mr. Chair, uh, I, I understand that, but I'm just concerned and, and I'm not, uh, I don't have a, a concern, uh, and, and I understand if this is a, a culinary water shares, uh, I, I get it. They're totally different than, than irrigation. But I'm just concerned about is, is this, you're talking here, water company, is that a different, uh, are we talking a different entity, uh, than a irrigation company? Is that, are we talking a difference here? That's what, uh, maybe we're, would, uh,

Ms. Thank you. There we go. Thank you, Mr. Vice Chair. Uh, in listening to Representative Chu's comments, uh, this, I do this all the time, and I don't think the concern is your, your concern is not that big a deal. I think it's addressed in here. One thing that the only, the company that I run, and the ones that we have, the only limitation is by source. So I have some places in Midway, for example, that are high enough that one source will feed 'em, and I can't transfer water from some other source up to it, obviously, for, for reasons of, of it just won't flow there. And that's the only limitation. And if somebody came to us and wanted to take some of their water and do what you're talking about, and it didn't affect other shareholders, I think that some other parts in the code address that. So I don't think this does, this is a really good move for putting back the, the management of the irrigation company where it ought to be. That was changed years ago, and the courts have kind of played with it. The state engineers treated most companies just like this all the time, because this is the most practical way to do it, in my opinion. But I think your questions, you need to get 'em answered, but I don't think that's the problem you're thinking about, in my opinion.

Thank you, Mr. Vice Chair. Uh, just a quick question. I, I have some shares in two different irrigation companies under this bill. I can still sell those shares for market rates, whatever they're going for. Or I can lease 'em for a season. Yes, yes or no? Yes. Thank you.

Thank you, Mr. Chair. I move that we favorably approve, uh, HB 4 94. We got an amendment. Do you wanna, oh, excuse Me. Move amendment.

Yes, I was Speaking to it.

Thank you. Then I'll, this time do it correctly. I'll favor. Motion is to favorably approve 4 94 as amended.

Chew. Thank you, Mr. Chair. You know, uh, I appreciate the, uh, the opportunity we have to work on these builds the way we do. And, and I, I understand what, what we need to do here. I just have a question about whether we've got it exactly like we need it. And of course, that's what we'll do. And, and, and I'm gonna vote for this. I want you to know that, because I feel like that between now and when it comes up on the floor, we can, if I, uh, still have, uh, have concerns and we figured out how to address them, then uh, we can, we can make a floor amendment if that's what we needed. Otherwise, uh, yeah. I'm, I'm very open. This is an important thing to do. And, uh, and I, I plan on supporting this, uh, this motion. Okay.

Thank you, Mr. Chair. Just, I want you to let you know, I think this is really, really an important bill. I deal, I don't have lots of water shares, but I've bought them, I've sold them, I leased them. And I like the idea of local control. I think that is critical to our canal companies. Thank you.

Thank you, Ms. Chair and Senator Slate. Um, this, uh, bill is about distinguishing an issue that's arisen in litigation that courts sometimes are not good at distinguishing the meaning of a water right from a water share. I want my good friend, the representative from the UN Basin to explain a little bit more. He helped work on an amendment to get some issues clarified and improved, so I'll let him speak Representative.

I, I appreciate that. Of course you guys know, but, uh, um, I need to identify myself. I'm representative Scott Chu and, uh, yeah, this is something that's been a, a confusing issue with, uh, in the water world. And I was concerned, uh, the reason I brought, uh, a, a substitute amendment forward was because, uh, what I was concerned that we weren't, uh, taking in consideration, uh, irrigation companies. And so, uh, that, you know, just, there's, there's, there's quite a difference between shares of a corporation or a water company, uh, compared to the water rights. And so that's what we've got here. Thank you. And then, uh, I'd like to hear from the state water engineer who helped craft the bill as well as part of the presentation. This really is a technical correction. I would just add as she's coming up here, that, um, this has passed the gamut of water, uh, before the session with the water task force and legislative water development passed those unanimously. And I'll let the engineer speak to it if she would.

Sure. Mr. Chair. Um, so Theresa Wilhelmson, Utah State Engineer and Director of the Division of Water Rights. And we just really appreciate Representative Owens, um, for picking up this bill. We have been working on it for probably a year and a half, and we really need to clarify how Title two shares in a water company are transferred versus water rights that are based on shares of stock. And this bill does do that. Um, we are looking at the interim to clarify just a couple administrative procedures on the water right side. Um, but this is focusing on those shares and it, um, is just much needed and will really help us get that clarity. And that'll conclude the presentation. But I anticipate two brief, uh, public comments. That'll be quite helpful, I think.

Yeah. So if I can address that, I'm not too sure which lines you're looking at, but no, this will actually clarify how shares of stock with the company gets transferred under the corporate code. And then it will leave the, the updates to the state engineer's records, um, hole.

Sure. So, um, if I may please, um, so you probably do have shares in an irrigation company, and it's correct that your updating title with your irrigation company, if for some reason you were to take one of those shares and want to say drill a well to do a different project, then you would come to the state engineer's office with the basis of that change.

Alright. And maybe can I add just one other clarification too? So a lot of properties, um, and when properties transfer with water rights, they use what's called a deed addendum. Um, they, those transactions actually go right directly to the counter recorder's offices and then they forward those to us and we update our records. So we are in sync with the Counter Recorder's office. Okay.

Thank you, Mr. Chair. My name is Warren Peterson. I'm here, uh, on behalf of Farm Bureau and a a bunch of water users as well. And you've, you've hit right on the, the crux of this, if you own shares in a company and you wanna transfer those shares, that's not done by deed. That's done on, I processed that in the Uniform Commercial Code. Yeah. And the courts have stumbled over this. They, they've had people coming in saying, well, grandpa intended to convey the water rights. And he did by deed. In fact, uh, the Bear River Canal Company just concluded a lawsuit about a year ago on this. In fact, at the time we started working on this bill. So this just draws a bright line. We wondered why the course kept getting confused on it, and that is because the water code talked about transferring shares in a water company. Well, water companies are regulated un under title, title 16, chapter six A, the Non-Profit Corporation Act. So what we did here is just tried to cleanly remove the language in the current code about transfer of water shares, water company shares over into the corporate code and leave the transfer of water rights as a separate substantive property right in the water code. And that's really what this bill does. Uh, the state engineer talked about quite a complicated process. Their, their office goes through to sort this out and, and get them on record properly. And that's why, if I could direct your attention to line 88, or excuse me, 86, uh, through 88 or 89 that says that the state engineer's office is not the repository for who owns the shares. It's the corporate office. Right. So that's, that's a distinction that's been creating some trouble. There were other things that were originally going to be part of this bill, but the state engineers said, just time out. Let's, let's take a year to work on those. Let's deal specifically here, keep it narrow and just move the, the water company stuff out of the water code into the non-profit acts. That's what the bill is about.

Yes. General manager of Barry River Canal Company. Just to add some context to the committee of why this keeps coming before the courts, essentially what has been happening is when you have a family that splits up an estate, um, there be a disagreement on who was awarded the water or the shares. And um, what happens is the side that didn't like the outcome essentially attempts to transfer the water saying that it's a water right, not water shares and tries to transfer it under this ability of it being tied to the ground when water rights are not water shares. And so we're just trying to take care of that, that incongruency or that making not incongruency so much as clarity to the courts to make sure that it's very clear that if it's water rights, it has to go through the corporate company or water shares, excuse me, has to go a corporate company. If it's water rights, then it can be tied to the ground and it goes through the state engineer's office. And that is the purpose. It's been litigated probably five or six times, um, going to either the appellate or the Supreme Court. Yeah. And so we'd like to slam the door on that and that's why we would recommend the bill. Do you mind if, um, you guys may know since you're reviewing the bill, if not, I can ask the sponsor if the family does.

All right. Thank you very much for the opportunity to speak. I'm Seth Stewart, just representing myself. Um, I, I do have concerns about, uh, transparency of, uh, water right and water share ownership. And I'm also concerned about the impact that, uh, removing the public oversight of water shares and transferring that over to private, uh, ledgers, making that the standard of proof, uh, that that could potentially disenfranchise various people who are dependent on the, on the water rights being secured in that way. So I'm, I'm uncomfortable with the language that, uh, that says that it's not regarded as a matter of Right. And, uh, just wonder how the, uh, bill sponsor would address that. Thank you.

to Senator Brammer for a motion on the bill. Yeah, I Would move to recommend favorably HB 4 94 first substitute.

Um, number one, uh, anytime, uh, Theresa and Warren are here, I give a lot of deference to how they are wanting to handle something. Um, they've, they've got a lifetime of history improving our, uh, water system and, and I appreciate their service to the state. Uh, number two, I think this is a really elegant way to handle it. I think it's an, it's been a matter of confusion in my mind and in spite of the fact that I'm oftentimes involved in litigation or things that touch on water rights, and I'll bring in a water expert re related to it. Um, but the idea of separating out and clarifying whether it's tied to the land or tied to an irrigation company, you know, the, the concern is to whether it's, you know, whether shares can be, uh, part of a private irrigation company or not, is a ship that sailed in the 1840s. And so, um, I'm not as concerned about that concern rep, you know, and so in any event, um, I would, I highly recommend this bill. Thanks.

I'll waive. Okay. I'll waive. Thank you very much.

Madam Reading Clerk House Bill 4 94 Transfer of water interests by Representative Owens. This bill was served in Natural Resources, agriculture and Environment with a vote of 9 0 5.

Mr. Speaker, uh, I'm anticipating a friendly sub from the good representative from the ENA Basin. I'll refer you to the handout you should have received from the Farm Bureau. Uh, getting into some of the technical details of this bill. This is a technical correction to our water law. There's could been confusion between the difference of, uh, what a water right is and what a water share is. It's been litigated unnecessarily in courts. Uh, and this just clarifies this for once in all, what that difference is, uh, the bill has passed the water task force legislative water development. It's supported by the state water engineer and the Farm Bureau and there were no stakeholders opposed. Thank you, Mr. Speaker.

So, uh, sub one in my name, will

Motion to motion to sub Thank you representative as that Motion to adopt Substitute one. Motion To adopt Substitute one. Thank you

So, uh, Mr. Speaker, the committee action intended to amend but wound up, uh, with a sub because of, uh, anytime you throw a rock in the pond by you get a ripple effect. And we wind up with a little more than we anticipated. This bill affects the whole state from Porcupine Reservoir near Paradise to the Great Basin aquifers in, uh, the lower end of the state, Colorado River and the Great Salt Lake. The purpose of HB 94 94 sub one is the same as the original bill. It clarifies the difference between water shares of a company and water rights. It's needed because a lot of land that water is associated with has been built on or even paved over. It assigns water shares to a specific piece of land. The sub takes away the fog blurring the vision of an irrigation company's ability to take advantage of different programs such as the dam Demand management on the Colorado River, the water optimization within the St. Great Salt Lakes. And, uh, this bill is important because it affects the, the whole state, the the the sponsor even generously used one of his priorities to make sure we got it on the board.

Thank you Mr. Chair. I is rise in support of the substitute and the, the bill. This is a space that I deal with a lot and this language in both cases is gonna bring it back to what it used to be about 10 years ago when the difference between a water share and a water right was well established and the, and the state engineer could handle both of 'em separately without getting confusion. Thank you.

I support it Mr. Speaker. It's a good sub and clarifies the, uh, intention.

So, uh, the sponsor is a good friend of mine and I literally mean that. Not just, uh, figuratively speaking, even though, uh, I affectionately sometimes accuse him of not knowing enough to drink from down, uh, below the herd. And, uh, I need him to know that I'm honored to be his teammate on this bill. And I feel that he has his rope firmly around the horns. And alls I've gotta do is pick up the heels. Thanks.

I did note did not drink downstream from the herd even before I met the good representative from UA Basin. Thank you Mr. Speaker.

So, uh, Mr. Speaker, the committee action intended to amend but wound up, uh, with a sub because of, uh, anytime you throw a rock in the pond by you get a ripple effect. And we wind up with a little more than we anticipated. This bill affects the whole state from Porcupine Reservoir near Paradise to the Great Basin aquifers in, uh, the lower end of the state, Colorado River and the Great Salt Lake. The purpose of HB 94 94 sub one is the same as the original bill. It clarifies the difference between water shares of a company and water rights. It's needed because a lot of land that water is associated with has been built on or even paved over. It assigns water shares to a specific piece of land. The sub takes away the fog blurring the vision of an irrigation company's ability to take advantage of different programs such as the dam Demand management on the Colorado River, the water optimization within the St. Great Salt Lakes. And, uh, this bill is important because it affects the, the whole state, the the the sponsor even generously used one of his priorities to make sure we got it on the board.

Thank you Mr. Chair. I is rise in support of the substitute and the, the bill. This is a space that I deal with a lot and this language in both cases is gonna bring it back to what it used to be about 10 years ago when the difference between a water share and a water right was well established and the, and the state engineer could handle both of 'em separately without getting confusion. Thank you.

I support it Mr. Speaker. It's a good sub and clarifies the, uh, intention.

So, uh, the sponsor is a good friend of mine and I literally mean that. Not just, uh, figuratively speaking, even though, uh, I affectionately sometimes accuse him of not knowing enough to drink from down, uh, below the herd. And, uh, I need him to know that I'm honored to be his teammate on this bill. And I feel that he has his rope firmly around the horns. And alls I've gotta do is pick up the heels. Thanks.

I did note did not drink downstream from the herd even before I met the good representative from UA Basin. Thank you Mr. Speaker.