Exempt Well Updates: Subdivision Review Process and Combined Appropriation Guidance

On February 14, 2024, Montana’s First Judicial District Court issued an order in Upper Missouri Waterkeeper, et al v. DNRC, in which it ruled that DNRC incorrectly applied the law when it determined that a developer was entitled to appropriate up to 10 acre-feet of water for each phase of a four-phased subdivision under the permit exception. The Court concluded that DNRC is required to treat all phases of a multi-phased development as part of the same combined appropriation. The Court also called into question other aspects of DNRC’s authority and evaluation of combined appropriations in the context of the subdivision review conducted by DEQ and local governments.

In the wake of the Court's order, DNRC and DEQ reevaluated their processes, resulting in a few changes:

DEQ and DNRC terminated the Memorandum of Understanding between the two agencies that formally set forth the predetermination process for water rights. DNRC will no longer issue predetermination letters.
DEQ must comply with ARM 17.36.103 (n) and (o). However, DEQ has begun the process of amending these rules to no longer require a predetermination letter for subdivision approval. While the rules are in the process of being amended, DEQ will deny subdivision applications submitted without a predetermination letter. If proposed rule amendments to ARM 17.36.103 (n) and (o) are effectuated, a Certificate of Subdivision Approval (COSA) may be issued without a predetermination letter upon final adoption.
DNRC rescinded the Combined Appropriation Guidance that was last updated on March 23, 2022. DNRC will analyze groundwater development to determine whether it constitutes a “combined appropriation” with other existing groundwater developments pursuant to § 85-2-306, MCA, ARM 36.12.101(12), and any other law applicable at the time the Notice of Completion of Groundwater Development (Form 602) is filed. A groundwater development serving a lot in a single-phase subdivision or multi-phased subdivision will be treated as a combined appropriation with other groundwater developments in the respective subdivision for purposes of compliance with the 10 acre-feet volume limit of the permit exception in 85-2-306(3), MCA. The cumulative volume of water appropriated by groundwater developments used in a multiphase subdivision may not exceed 10-acre feet annually when the exception under §85-2-306 is used to acquire water rights

Read the Frequently Asked Questions below to learn how these changes may impact pending development, as well as what's on the horizon to ensure long-term clarity and coordination in the subdivision approval process.

Frequently Asked Questions

How will these changes impact my pending project’s path through the subdivision review process?

All applications for subdivision review with DEQ currently require a water rights predetermination letter from DNRC unless the development proposes to use an existing public water supply system. DNRC no longer issuing predermination letters will impact projects differently depending on where the application or predetermination request is in the process.

How do these changes impact a predetermination request pending with DNRC?

You should have received an email from DNRC notifying you that predetermination letters will no longer be issued. DEQ must comply with ARM 17.36.103 (n) and (o). However, DEQ has begun the process of amending these rules to no longer require a predetermination letter for subdivision approval. While the rules are in the process of being amended, DEQ will deny subdivision applications submitted without a predetermination letter. If proposed rule amendments to ARM 17.36.103 (n) and (o) are put into effect, a Certificate of Subdivision Approval (COSA) may be issued without a predetermination letter upon final adoption.

How do these changes impact a pending COSA application for which a predetermination letter from DNRC was already issued?

If your project involves a multi-phased subdivision, you should have received a letter rescinding the DNRC predetermination letter(s) for your project. DEQ is unable to approve your COSA application until the rule amendment eliminating the predetermination requirement is adopted. If the proposed rule amendment to eliminate the predetermination requirement is adopted, DEQ will resume processing COSA applications that were denied for the predetermination letter based on the original response due date.

Please note that if your project is not a phased subdivision development, it is unlikely these changes will impact your pending COSA application. At the time a Notice of Completion of Groundwater Development is filed, DNRC will analyze the groundwater development to determine whether it constitutes a “combined appropriation” with other existing groundwater developments pursuant to § 85-2-306, MCA, ARM 36.12.101(12), and/or any other law applicable at the time the Notice of Completion of Groundwater Development is filed. A previously issued predetermination letter that conflicts with the combined appropriation law at the time the Notice of Completion of Groundwater Development is filed is invalid and will not be relied on by DNRC.

Please read below to learn how the District Court’s Order may impact the combined appropriation analysis. To the extent that your predetermination letter is inconsistent with the law, DNRC will follow the law. Call your regional office Regional Offices (mt.gov) if you have questions.

Why is DNRC changing the way it evaluates combined appropriations?

The District Court found that DNRC incorrectly applied the law when it determined that each phase of a four-phased subdivision development was a separate project entitled to up to 10-acre feet under the permit exception. The District Court concluded that “the blackletter law is clear that multiphase developments are one combined appropriation with no qualifiers.” Accordingly, the law requires that DNRC treat all four phases as part of the same combined appropriation. In response to the ruling, DNRC reevaluated its application of the combined appropriation rule and statute to multi-phased and sequential developments.

How will the updated combined appropriation analysis impact my project?

DNRC will analyze a groundwater development to determine whether it constitutes a “combined appropriation” with other existing groundwater developments pursuant to § 85-2-306, MCA, ARM 36.12.101(12), and any other law applicable at the time the Notice of Completion of Groundwater Development (Form 602) is filed. A groundwater development serving a lot in a single-phase subdivision or multi-phased subdivision will be treated as a combined appropriation with other groundwater developments in the respective subdivision for purposes of compliance with the 10 acre-feet volume limit of the permit exception in 85-2-306(3), MCA.

The impacts will depend on the specific factual scenario at the time the Notice of Completion is received. Due to the need for case-by-case analysis, DNRC anticipates delays in processing all 602 forms for both pending and forthcoming filings that are potentially subject to the definition of a combined appropriation.
The changes to DNRC's processes will not impact water users applying for a beneficial water use permit or a change authorization. The changes also will not impact active water rights, whether permitted or exempt.

How will DNRC ensure that the combined appropriation analysis is completed consistently throughout the state?

DNRC has developed guidelines to create consistency in which elements will be reviewed when evaluating multiple groundwater developments for combined appropriations. Evaluation of combined appropriations will be completed by the staff reviewing and processing the Notice of Completion of Groundwater Development (Form 602). Unique situations will be escalated to Regional Managers and ultimately the Regional Operations Manager to ensure consistency.

How will DNRC and DEQ ensure long-term certainty and coordination in this process?

DNRC does not wish to minimize the challenges under the current system of finding water rights for new development while also protecting senior water users. Obtaining water through a permit, change, or connection to the public water supply is difficult in some areas due to costs of hook-ups or infrastructure necessary to mitigate new uses, easement costs, and availability of water rights that could be changed to satisfy or mitigate the new uses. In addition, water users relying on exempt wells do not receive final certainty on whether their groundwater development is a valid exception to the permit process until their Groundwater Certificate is issued or denied upon filing the Form 602.

That is why DNRC, DEQ, and stakeholders are collaborating on proposed legislation that would chart a smoother path for developers to obtain water rights and water, wastewater and stormwater approvals. The Comprehensive Water Review is discussing a suite of holistic solutions to meet increased water demands while protecting existing water rights, examining both policy and funding recommendations.

Will DEQ issue refunds for subdivisions for lack of a DNRC predetermination letter?

No. The current rule requires the DNRC letter. This will remain a denial point (not an extension) until the rule is changed. DEQ will be required to deny subdivision applications submitted without a predetermination letter. If proposed rule amendments to ARM 17.36.103 (n) and (o) are put into effect, a Certificate of Subdivision Approval (COSA) may be issued without a predetermination letter upon final adoption.

How will the District Court’s Order impact my division of land pursuant to the Platting Act (Title 76, Chapter 3, MCA)?

Questions about the Platting Act should be directed to your county planning office.