In a landmark ruling that some analysts are calling a “major victory” for the hydropower sector, a unanimous U.S. Supreme Court last week overturned a March 2010 decision by the Montana Supreme Court that entitled the state of Montana to collect $89 million in back rent from PPL Montana for that company’s use of state-owned riverbeds for long-standing hydropower plants.

PPL Montana owns and operates 10 dams in Montana, including five on the Upper Missouri River within 15 miles of Great Falls, and two others located in steep canyons on the Madison River (the seven dams altogether known as the Missouri-Madison project). PPL also owns the Thompson Falls project, a facility on the Clark Fork River. Both projects are licensed by the Federal Energy Regulatory Commission (FERC) and have existed for many decades—some for more than a century.

The dispute between PPL Montana—a subsidiary of Allentown, Pa.–based PPL Corp.—and the state began in 2003, when the parents of Montana schoolchildren filed a federal lawsuit against the company, claiming that its hydroelectric facilities were on state-owned riverbeds that were part of Montana’s school trust lands, and the company should be obligated to pay rent. In 2004, Montana joined the suit, an effort spearheaded by then-Attorney General and current Montana Supreme Court Chief Justice Mike McGrath.

That case was dismissed, but PPL and other power companies filed a state-court suit, claiming that Montana was barred from seeking compensation for PPL’s riverbed use. Montana counterclaimed, contending that, under the equal-footing doctrine, it owned the riverbeds and could charge rent for their use.

The state claimed that portions of the three rivers in question—the Missouri River, the Madison River, and the Clark Fork River—were navigable when Montana became a state in 1889, based on accounts from Meriwether Lewis and William Clark of their journey through the region more than two centuries ago. PPL Montana contended that when Montana was admitted to the Union in 1889, the river segments now occupied by its projects were non-navigable, and therefore the underlying riverbeds remained federal property. PPL Montana argued that its predecessors bought private riparian lands along these rivers, and the company pays rents to the U.S. for the use of adjoining federal lands.

In June 2008, the trial court granted Montana summary judgment as to navigability for purposes of determining riverbed title and ordered PPL to pay Montana $41 million in rent for riverbed use between 2000 and 2007. The Montana Supreme Court affirmed that decision in March 2010. As of Dec. 31, 2011, PPL Montana’s total loss accrual for back rent was $89 million, including the original judgment of the Montana courts plus interest.

But in its ruling last week, the U.S. Supreme Court unanimously found that the Montana Supreme Court had disregarded “well-established Supreme Court” precedents governing state riverbed title, requiring that navigability be assessed by segments rather than by the river as a whole.

“The Montana Supreme Court further erred as a matter of law in its reliance upon the evidence of present-day, primarily recreational use of the Madison River,” wrote Justice Anthony Kennedy in the court’s opinion. “Error is not inherent in a court’s consideration of such evidence, but the evidence must be confined to that which shows the river could sustain the kinds of commercial use that, as a realistic matter, might have occurred at the time of statehood.”

The Montana Supreme Court’s ruling that Montana owns and may charge for use of riverbeds across the state was based upon an “infirm legal understanding of this Court’s rules of navigability for title under the equal-footing doctrine,” Justice Kenney wrote. “The judgment of the Montana Supreme Court is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.”

Montana Attorney General Steve Bullock called the court’s decision last week “disappointing,” but said in a statement the decision had no bearing on the state’s stream access law. That law says the public can recreate on any natural system, irrespective of who owns the beds and banks.

PPL Montana said in a statement that it hoped the decision would lead to a “swift resolution of this prolonged dispute.”

"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,” said Robert J. Grey, senior vice president, general counsel and secretary of PPL Corp. “Any contrary decision could have serious future implications for other Montana streambed users including ranchers, irrigators, cities, dock owners and recreational users.”

Grey said PPL Montana appreciated the diverse support it received in its appeal from numerous organizations, including 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.

Energy law experts called the decision a “victory” for the hydropower industry. “Had Montana’s approach stood, many other states might have followed it, upsetting long-settled expectations as to ownership of riverbeds under non-navigable falls and rapids,” wrote attorneys from the legal firm VanNess Feldman. “Demands by cash-strapped states for retroactive and prospective rental fees could have proliferated, upsetting long-standing property rights.”

Van Ness Feldman authored an amicus brief for the hydroelectric industry in the case, PPL Montana LLC v. Montana.

Sources: POWERnews, U.S. Supreme Court, PPL Montana, Montana Attorney General’s Office, VanNess Feldman