CARSON CITY -- A Supreme Court panel ruled Wednesday that the state engineer did not properly justify the need to transfer water from the Sandy Valley basin to support economic development at nearby Primm in Southern Nevada.

The Supreme Court reversed a ruling by Clark County District Judge David Wall and said residents of Sandy Valley have the right to a judicial review of the findings of then-State Engineer Hugh Ricci, who partially approved the request for an interbasin transfer of water.

But the court also upheld the right of a third party, in this case the Vidler Water Co., to apply for water rights even if it isn't the party putting the resource to a beneficial use.

Although Vidler had filed the application, the company said it was applying on behalf of the Primm South Real Estate Company, which owns approximately 825 acres along Interstate 15 south of Las Vegas.

The towns of Sandy Valley and Primm are near the California border, but Sandy Valley is about 20 miles northwest of Primm.

In upholding Vidler's right to apply for the water, however, the court adopted for Nevada what is called the "anti-speculation doctrine." That doctrine prohibits water rights applications from anyone who does not intend to put the water to their own benefit or who has no contractual or agency relationship with one who does. Vidler had such a relationship.

"This doctrine precludes speculative water right acquisitions without a showing of beneficial use," the court said.

The original application sought 2,000 acre-feet of water a year from the Mesquite Valley basin, also known as the Sandy Valley basin. An acre-foot is about 326,000 gallons, which is almost enough water to supply two average Las Vegas homes for a year.

Ricci granted 415 acre-feet of Sandy Valley basin water to Vidler for Primm South Real Estate Company.

Sandy Valley residents then challenged Ricci's findings in court, but their attempt to do so was rejected by the district court. They then appealed.

The Supreme Court ruling in Sandy Valley's favor "thrilled" Sandy Valley resident Joy Hyde Fiore.

"Of course we've seen the state engineer be really intractable when the Supreme Court sends a ruling back, but they can't fight this one," she said.

Fiore said no transfer should have been granted, because the Primm company, which wanted water for a number of projects, had enough rights in its own Ivanpah basin.

The company has 751 acre-feet of water rights for use in Primm.

"They have gone ahead with all of their projects without our water," Fiore said. "Everybody applies for water out here, but we just don't have it."

Fiore said the water table continues to drop in the valley due to heavy pumping just across the border in California.

During the application hearing, Primm South's vice president, Doug Clemetson, testified on behalf of Vidler Water.

Clemetson said future developments would include expansions of a power plant and an existing mall, construction of apartment-style employee housing, an industrial warehouse park, a theme park and a train station.

Ricci found the total use of Primm South's Ivanpah water rights was 464 acre-feet in 2001, leaving about 287 acre-feet available to support future development.

In considering the application for the Sandy Valley water, Ricci considered a number of the proposed projects, including a second phase power plant expansion, the mall expansion, employee housing, an industrial park and a theme park.

But the court said Ricci's decision and the record suffered from a "fundamental defect," with no finding of how much water each project would require.

"Because he failed to make the necessary calculations to determine Primm South's future water usage by project and the support of that usage by the imported water, the state engineer's decision is not supported by substantial evidence," the court said.