There is a long history of the government having to create rules to protect downstream residents/ranchers/farmers from activities of those upstream. The movie Pale Rider has a pretty good example of one way activity upstream can destroy the livelihood of those living downstream, ruin property values, etc. when the bad guys divert the river away from the placer mining camp. Enough residents, ranchers, farmers, etc. diverting even a tiny bit of water can either instantly or over time completely change the ecological balance downstream due to reduced or diverted water flow.
On the flip side, the laws often have no way to allow for truly insignificant upstream water usage simply because everyone that lives even one foot downstream has an interest in not allowing the upstream guys to divert or hold any water that would otherwise flow downstream. So instead of coming up with ways to measure cumulative effects or drawing a line as to what is and is not allowable use, they simply pass a blanket law that bans all such activity and then arbitrarily enforce it whenever someone catches the attention of the city/county/state or arouses the ire of a downstream resident with enough money to force the lawsuit through.
As always, the trick is not getting caught.
