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Justices grill lawyers in hydro challenge to Montana riverbeds rent

WASHINGTON 12/9/11 (PennWell) –- Eight Supreme Court justices fired questions at lawyers for an hour in PPL Montana's appeal of a Montana court order that PPL Montana pay the state $50 million in back rent for use of riverbeds occupied by the utility's hydroelectric facilities.

The Montana Supreme Court ruled in March 2010, upholding First District Judge Thomas Honzel, who said the state owns more than 500 miles of riverbeds and that PPL Montana owes it $50 million in back rent. Amounts to be paid going forward would be determined by the Board of Land Commissioners.

PPL Montana appealed to the U.S. Supreme Court, and was joined by the U.S. Justice Department as a supporting intervenor. The high court heard arguments Dec. 7.

Although the hydro projects have been in existence for a century, the state recently pressed its claim that it owns the land under the Missouri, Madison, and Clark Fork riverbeds where the hydro plants sit. The case turns on differing opinions whether the state owns the land, or whether it belongs to the project operators, or to the federal government.

"The Montana Supreme Court could only approve this result, which clearly did unsettle settled expectations, by deviating from well-settled principles of federal navigability law," PPL Montana's lawyer, Paul D. Clement, told the court.

Montana's lawyer, Gregory G. Garre, argued that, at Montana's statehood, the rivers were determined to be navigable, and, based on an 1851 court decision, could be claimed by the state, including impassable falls and rapids where hydro plants are built, because they included portages that made them "continuous highways of commerce." Non-navigable rivers remained federal property or were conveyed, to the river centerline, to private riverbank property owners.

PPL Montana's Clement argued that the project sites were on non-navigable stretches and the utility's land deeds rely on "the background rule."

"The background rule is if it's a non-navigable river, the riparian owners, whether it be the United States or private property owners, get to midway (of the river) or if they own on both sides, they get the whole thing," Clement said.

Navigability lacks clear definition

The justices indicated prior case law lacks a clear definition of navigability in cases where portaging is involved. Justice Department lawyer Edwin S. Kneedler pointed out there are conflicting judicial guidelines for determining navigability, depending on whether it is to establish interstate transportation, regulatory jurisdiction, or, as in this case, title to the riverbed.

"After traversing the Missouri and the very falls at issue in this case, Meriwether Lewis described it as 'he didn't think the world could furnish a finer example of a navigable river through a mountainous country than the Missouri,'" Montana's Garre said.

"Did he write that during is 30-day -- 32-day portage?" Justice Anthony Kennedy asked, to courtroom laughter.

"Your honor, it was an 11-day portage," Garre replied.

The justices questioned Garre's argument that the state must own the riverbeds of the non-navigable parts of the navigable riverbeds or it would result in slices of river where the state does not have legal jurisdiction.

"You are willing to concede on behalf of the state that if we find that the state does not have ownership of the bed, the state does not have regulatory jurisdiction for all of these purposes that you were now describing?" Justice Antonin Scalia asked.

"Absolutely not, Justice Scalia," Garre replied.

"Well, then your argument doesn't carry much weight," Scalia said. "The state can continue to regulate all those things whether or not it owns the bed."

PPL Montana's hydropower holdings include 326.9-MW Missouri-Madison (No. 2188), 10-MW Mystic Lake (No. 2301), and 92.6-MW Thompson Falls (No. 1869). The company acquired the projects from Montana Power Co. in 1999.

Two other utilities once involved in the case, Avista Corp. and PacifiCorp, settled rather than go to trial on the state lawsuit. Avista and PacifiCorp are regulated utilities and can pass the costs of the rents through to their ratepayers. PPL Montana is not regulated by the state and does not have a mechanism for passing along the cost.

Avista agreed to pay millions of dollars in rent each year to the state for riverbeds occupied by the utility's hydroelectric facilities, including $4 million for 2007. PacifiCorp agreed to lease 47.84 acres of riverbed in the Swan River in return from being dropped from the case.


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