45 ELR 10932 ENVIRONMENTAL LAW REPORTER 10-2015
Liquid Gold or Water for Pecans?
Valuation of Groundwater in
Regulatory Takings Law
by William W. Wade, Ph.D.
William W. Wade is a water resource economist.
In 2012, t he Texas Supreme Court’s decision in Edwards
Day reversed 100 years of state water
law by changing the principle that establishes g roundwa-
ter ownership rights from a “rule of capture” to a rule of
ownership of “groundwater in place.”1 e ongoing Bragg
litigation is the rst of what
could be a number of Texas cases invoking Day to claim a
regulatory taking due to the Edwards Aquifer Authority’s
(EAA’s) management of the Edwards Aquifer groundwater.
Following a 2013 decision for the plainti landowners
by the San Antonio appellate court,2 both pa rties peti-
tioned the state supreme court for review. In May 2015, the
Texas Supreme Court denied the petitions.3 Its refusal to
review lets sta nd the court of appeals’ decision that EAA’s
groundwater permit denials for Glenn and JoLynn Braggs’
two pecan orchards in Medina County amount to a regu-
latory taking under the U.S. Supreme Court’s r uling in
e appellate court’s remand to the trial court for valua-
tion of the Braggs’ damages for their taken water supply is
the remaining issue in the litigation, and the subject of this
Comment.5 e disputed question is whether just com-
1. , 369 S.W.3d 814, 831-32, 42 ELR 20052
(Tex. 2012), equated groundwater ownershi p to oil and gas ownership,
concluded that dierentiating “between gro undwater and oil and gas in
their import ance to modern life would be dicult,” and ruled that each
landowner “owns separately, distinctly, and exclusivel y all the water under
Edwards Aquifer Auth. v. B
ragg, 421 S.W.3d 118
43 ELR 20202 (Tex. Ct.
3. Edwards Aquifer Auth. v. Bragg, No. 13-1023 (Tex. May 1, 2015) (denying
cross-petitions for review).
, 421 S.W
enn Central T
5. Id. at 152-53. e appellate court also issued rulings on other elements of
the case: (1)Penn Central governs the evaluation of the regulatory taking
eective 2004 for one of the plaintis’ orchards and 2005 for the other
pensation should be based on valuing the Braggs’ water
as a tradable commodity (akin to “ black gold” or oil in
the ground), or instead on the use value of the water, con-
sistent with the appellate court’s ndings that the Braggs’
forgone water use was to irrigate their pecan orchards. e
answer to the question is relevant not only to the Bragg
litigants, but also to water management policy for the state
of Texas. Economic loss calculation issues in this litigation
are pertinent to both t he Penn Central test6 and to just
compensation within any reg ulatory takings c ase involv-
ing lost income.
is Comment has a narrow focus on the valuation
approaches used by the litigants and the courts. Part II pro-
vides background on the Bragg litigation. Part III identies
the plaintis’ and defendants’ theories of damages, and the
appellate court’s valuation approach on remand. Part IV
discusses the deciencies of the appellate cour t’s valuation
approach, and explains the standard approach to estimate
just compensation for lost income.
I conclude th at the pla intis’ persistent valuation of
their taken access to EAA groundwater as if it were a
tradable commodity was corre ctly disallowed by the
appellate court. e Braggs did not trade water; indeed,
they could not have t raded the water t hey requested in
their EAA permit applications because it wa s needed to
irrigate their trees. At the same time, the appel late court’s
remand for va luation of the pe can orcha rd land with and
without access to E AA water, in a fact pattern where it
was not the land that was the taken property right, is
inconsistent w ith standard economic prac tice. e appel-
late court’s remand instr uction is an economic er ror.
orchard; (2)the dates of the takings are the benchmarks for the valuation of
damages; (3)the Edwards Aquifer Authority Act (EAA Act) was not imple-
mented until 2004 and 2005; therefore, the Braggs’ claims are not time-
barred; and (4) EAA, not the state of Texas, is responsible for payment of
6. In what has become known as the three-prong test, the Court in Penn Cen-
tral, 438 U.S. at 124, stated that its “decisions have identied several factors
that have particular signicance. e economic impact of the regulation on
the claimant and, particularly, the extent to which the regulation has inter-
fered with distinct investment-backed expectations are, of course, relevant
considerations. So, too, is the character of the governmental action.”
across the country since 1986 and provided expert testimony on
Penn Central test.
Copyright © 2015 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.