If you wish to become an informed Seller or Buyer of Montana Water Rights it is imperative that you understand the basic concepts, laws and processes that determine whether a particular “Water Right” is extremely valuable, or practically worthless (or somewhere in between). Montana observes what is known as the doctrine of “prior appropriation.” This doctrine says that those who first put a specific amount of water to beneficial use in a specific place gets to continue using it “first” when water is scarce. And that “first right” can be passed on to subsequent holders of that right. This “first in time, first in right” priority dating system ensures that water users whose water right was first put to use (call these the “senior users”) can legally demand that their water needs from a stream or aquifer be fulfilled before the interests of “junior users”. Some senior water rights in Montana go back to the 1860’s. In dry years when water is too scarce to satisfy all water rights, senior users get water and junior users often don’t. So the first basic lesson is that not all water rights are created equal. In a dry year, a 1920 water right for 10 cubic feet/second (cfs) may not provide as much water to the user as an 1875 water right for 2 cfs.
Now you can understand why older “Priority dates” may make some Rights far more dependable and therefore far more “valuable” than other extremely “junior rights”. But Priority is only one of many factors needed to determine a “dollar value” for a Water Rights.
Another key factor in valuing water rights under the “doctrine of prior appropriation” is that water must be put to a “beneficial use”. When this system evolved in the arid west a century ago, “beneficial use” was largely defined as the act of diverting waters from a stream or river. Water left instream was widely considered to be wasted. A well-managed stream was a dry one. The “idea” of water left instream to serve a beneficial use didn’t begin to surface in Montana law until the late 1960’s. Now, in specific circumstances, it is possible to Purchase or Lease a legal water right for such things as the benefit of fisheries, wildlife, water quality or the mitigation of possible adverse effects on the other water users.
It should be noted that some believe that simply diverting a lot of water, even if they don’t actually apply it to a beneficial use, protects a water right from a claim of “abandonment”. Unfortunately, it doesn’t.
The essential element in protecting a claim to a water right is to apply it to a beneficial use in a specified place. In the case of irrigation, for instance, that means actually irrigating something other than a ditch bottom. Likewise, pouring enough water on forty acres to irrigate 400 acres doesn’t establish a beneficial use of the excess water. The beneficial use is limited by the reasonable need of the particular use. The “reasonable needed quantity” can be extremely difficult to calculate and even harder to substantiate, but it remains a key element in determining a water right’s “dollar value”.