Western water rights are different than Eastern. In the West we have appropriations based on a first in time system. When water is scarce, the most recent priority is shut off first, and so on, with the oldest appropriation having the highest priority.
What he is doing is trying to circumvent others' property rights by keeping all his runoff. Basically, he is stealing water from its rightful owners.
I'm sure the law doesn't differentiate between water that is passing through (like a stream) and water that falls from the sky by the grace of God. It should. The law is almost always an ass.
I could see someone being limited from taking from a stream or river, but not rainfall. I'm sure many would disagree, but I see rainfall quite differently, as there are any number of things one could do besides building a pond, or similar structure to increase ot decrease the amount of runoff a given stretch of land might have. I see this as just another form of collectivism.