Brian Fallow: Property rights rule in water claim

The High Court last week stood up for property rights in the increasingly vexed area of water allocation, and did us all a favour.

It found for Meridian Energy in a dispute with the Aoraki Water Trust, representing farmers who want to take water from Lake Tekapo for irrigation.

Meridian has a long standing resource consent to use the lake's water for hydro generation, under defined conditions. Its consent covers more water than nature delivers; the resource, in short, is fully allocated already.

For the authorities to grant irrigators rights to use the same resource would be what Americans in less politically correct times called Indian giving.

Local reaction to the court's decision in what, after all, is one of the more desiccated parts of the country was predictable.

The Timaru Herald reported National's Aoraki candidate, Jo Goodhew, to be shocked and disappointed, "because it means all the water is being used to heat Auckland's towel rails at the expense of economic development and growth in South Canterbury".

Aoraki MP Jim Sutton, a farmer as well as a politician, was merely disappointed.

"Medium-term, law changes that look at regional cost/benefit analysis might provide some hope when existing consents expire," he suggested.

But for a business community that already looks upon the Resource Management Act with a cold and an unloving eye, it would have been a chilling signal if the court had gone the other way.

Meridian cited uncertainty about this issue as one of the reasons it pulled the plug on Project Aqua, its planned hydro scheme for the lower Waitaki.

Other generators have been watching the case closely. If water consents proved crumbly it would be a blow to those companies' balance sheets and to any plans they might have to develop hydro resources.

Meridian, a state-owned enterprise, estimated the loss of water involved would have wiped around $100 million off its value. That's our money, folks.

But the issues are wider and deeper than that, concerning the nature of resource consents and the role of property rights in the sustainable management of water resources.

Aoraki (supported by the Timaru and MacKenzie district councils) applied to the court for declarations that Meridian's consents do not constrain the Canterbury Regional Council's statutory discretion to grant consents to others or constrain the power of a new body, the Waitaki Catchment Water Allocation Board, to allocate water in the regional plan it is tasked with developing.

Aoraki contended that permits to take, divert or use water do not give the holder a priority right to water from the same source or upstream.

Instead they provide no more than permission to use such water as is available at the relevant take-off point.

They give no right to demand or expect the amount of water available at those locations will not be diminished by the later grant of permits to others.

It argued that a water permit is not a property right because it is not freely transferable, does not usually give an exclusive right to the water specified, and cannot guarantee the water's availability.

Furthermore, Aoraki said, Parliament, in a Waitaki-specific amendment to the Resource Management Act, this year rejected a proposed provision that would have protected allocations already made to Meridian and other consent-holders.

And by declining to restrict the operation of the amendment act to downstream of Meridian's facilities, Parliament accepted there was still water to be allocated upstream of the Waitaki dam and left it to the new Waitaki Catchment Water Allocation Board to judge competing claims on their merits, Aoraki argued.

But Justices Lester Chisholm and Rhys Harrison would have none of it.

They found that where a resource is already fully allocated in a physical sense to a permit holder, a consent authority cannot lawfully grant another party a permit to use the same resource, unless specifically empowered to do so by the RMA.

Taken to its logical conclusion, they said, Aoraki's argument would undermine the resource licensing system.

There would be no enforceable order of preference or priority, a chaotic situation which would be the very antithesis of the sustainable management contemplated by the act.

They said the Court of Appeal had identified the principle of first come, first served as Parliament's guide to how an authority should regulate competing applications for scarce resources.

Granting a water permit for a particular volume of water over a specified period committed the consent authority to that grant and it was not entitled to deliberately erode the grant unless acting under specific statutory powers.

Granting a permit to Aoraki to use the same water would inevitably reduce Meridian's ability to generate electricity, thereby devaluing its grant.

"Where the consent authority's commitment represents a full allocation of the resource to the grantee ... the latter must reasonably expect to proceed with planning and investment on the basis that the consent authority will honour its commitment," they said.

"Indeed, refusal to recognise that expectation would seriously undermine confidence in the integrity of water permits."

Quite.

Meanwhile, officialdom is turning its collective mind to the issue of how access to water should be allocated in the light of increasingly fierce competition for it.

The days when water could be regarded as an abundant resource more or less freely available to anyone who needed it are gone.

A key question is the appropriateness and usefulness of using tradeable rights and markets to ensure this scarce resource goes to whoever values it most. That is the approach used for fisheries and potentially for the discharge of greenhouse gases into the atmosphere.

But even where water permits are transferable, the practice is rare except when irrigated land changes hands.

The issue of water allocation is complicated by the fact that water is not just an economic resource. There are recreational amenities, environmental values and even spiritual sensibilities to consider.

An example of the latter is causing problems for Genesis Energy. The Environment Court ruled that its water rights for the Tongariro scheme should only be renewed for 10 years rather than the 35 years it sought (and the local authority agreed), so that there can be a meeting of minds between the company and Whanganui iwi affronted by the fact that some of the headwaters of a river sacred to them get diverted into the catchment of the Waikato.

If the High Court's decision last week is not successfully appealed, it would seem to have the effect of limiting the scope of the new Waitaki water allocation board to that part of the river downstream of Meridian's Waitaki dam.

Even so, such are the competing claims that it will need the wisdom of Solomon.