High court rejects Montana attempt to charge PPL rent for hydro waters

A unanimous U.S. Supreme Court ruled Feb. 22 that the state of Montana lacks the authority to charge a PPL (NYSE: PPL) subsidiary millions of dollars in rent for use of certain riverbeds for hydroelectric power projects.

Montana had argued that it has title to the disputed riverbeds under the constitutional “equal footing” doctrine. Based on its title claims, Montana sought compensation from PPL Montana for $41m in riverbed rent from 2000 to 2007 alone.

“That judgment must be reversed,” Justice Andrew Kennedy wrote for the court.

The three rivers in question are the Missouri River, the Madison River, and the Clark Fork River.

PPL Montana has 10 facilities built upon riverbeds underlying segments of these rivers. The hydro projects have existed for decades and are licensed through FERC. PPL has historically paid rent to the United States.

In 2003, parents of Montana schoolchildren filed a federal suit, claiming that PPL’s facilities were on riverbeds that were state-owned and part of Montana’s school trust lands. The state joined the suit and, for the first time, sought rents from PPL for its use of the riverbeds.

That case was dismissed, but state litigation followed, which ended in a trial court victory for Montana, which was subsequently upheld by the Montana Supreme Court.

At issue was whether these rivers are “navigable waters” that are controlled by the state. What matters in defining title is whether the waters were navigable at the time of statehood, the U.S. (right?) Supreme Court said in its 30-page ruling.

“As the litigation history of this case shows, Montana filed its claim for riverbed rent over a century after the first of the dams was built upon the riverbeds,” the U.S. Supreme Court said. While this long delay does not strictly bar the state’s “much-belated claim,” it weakens the state argument that the waters were navigable at the time of statehood, the high court said.

“The Montana Supreme Court’s reliance upon the State’s evidence of present-day, recreational use, at least without further inquiry, was wrong as a matter of law,” the high court said in its opinion.

“The highest court in the land has affirmed PPL Montana’s long-held position that non-navigable stretches of riverbed lands are not owned by the state,” Robert Grey, PPL Corp. senior vice president, general counsel and secretary, said in a news release (right?). “Any contrary decision could have serious future implications for other Montana streambed users including ranchers, irrigators, cities, dock owners and recreational users.”

As of Dec. 31, 2011, PPL Montana’s total loss accrual was $89m and includes the original judgment of the Montana courts plus the company’s estimate of interest and rent that would have accrued beginning in 2007 under the state court’s ruling, the company said.

PPL Montana’s appeal was supported by the Montana Water Resources Association, Montana Farm Bureau, the Edison Electric Institute and the National Hydropower Association, as well as the U.S. solicitor general, the company said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.