This week’s ruling by District Judge Thomas Honzel in favor of the state in its lawsuit against dam-owner PPL Montana is good news—PPL should be paying rent to use the state-owned lands on which its dams sit. But in the end, given that PPL remains an unregulated wholesale power producer, the bittersweet decision will also drive up already skyrocketing utility costs for consumers.
Honzel’s decision was announced at the monthly meeting of the Land Board on Monday, but the real story starts not with the suit on which Honzel ruled. Rather, it begins with some Bozeman parents who initiated their own suit almost five years ago to raise funding for their children’s schools. They knew Montana’s many corporate dam owners had enjoyed a century-long free ride while everyone else who wants to run cows, grow crops or even bird watch on state lands had to pay up or get busted.
Just for historical accuracy, it should also be noted that the Land Board, which acts as the trustee for all state-owned lands, had never contemplated charging the dam owners rent until after the Bozeman parents filed their lawsuit. The state then joined the suit and, after the judge ruled that the parents did not have legal standing, the state became the main plaintiff against the dam owners.
Right out of the chute, PPL Montana maintained the state had no authority to charge rent on the riverbeds and banks on which their 10 dams sit, contending the state is preempted by the Federal Power Act. Back in 2006, Judge Honzel ruled in favor of the state on its claims of ownership of the riverbeds and banks, but left open the question of whether the state law governing dams—the Montana Hydroelectric Resources Act—was preempted by federal authority. That question was settled in the Court’s ruling this week and once again made in favor of the state.
Following Honzel’s 2006 ruling, both Avista and Pacificorp, which also own and operate hydroelectric dams in Montana, decided to settle with the state rather than continue litigation. But PPL Montana decided it would rather spend money on attorneys than pay rent to the state. Hence, the corporation counter-sued the state, seeking declaratory relief on whether the state could seek compensation for the use of the state-owned riverbeds. PPL also claimed the state could not charge them for use of the lands below the dams, despite the fact that they are in the project boundaries for the hydroelectric facilities.
In his Conclusions of Law, Judge Honzel ruled that the state not only had the right to charge the dam owners rent for their use of state lands, but that the Montana Constitution and state law specifically require the Land Board to “secure the largest measure of legitimate and reasonable advantage to the state.” Honzel quoted Section 77-4-202, MCA, which provides: “The words ‘power site’ as used in this part shall mean not only the state-owned land on which the dam is constructed, but also each separate tract of such land which will become part of the reservoir and which in and of itself makes an essential contribution to the value of the power site as a whole…”
Since the dams could not operate without the below-dam lands, Honzel wrote: “It is not necessary to resort to the rules of grammar to determine whether the State can be compensated for the below dam acreage…Because the riverbeds below the dams, like those riverbeds above the dams, are school trust lands, the State, as trustee of those lands, is required to get full market value for the lands it leases.”
Based on the percentage of the state-owned lands’ contribution to the revenues PPL Montana has earned off the dams, Honzel also approved the state’s calculations of how much rent PPL owed, going back to the corporation’s approval to operate the dams in 2000. That comes to some $34 million due as back rent from 2000 to 2006, and about $6 million for 2007. He stopped short, however, from setting the lease price for the future, writing “any lease must be approved by the Land Board, and the Court cannot set the terms of the lease, including provisions for calculating future rents.”
PPL Montana’s spokesman and former legislator David Hoffman told reporters that Honzel’s ruling “upsets 100 years of settled property and water rights law.” He added, “This decision certainly isn’t an incentive to create or expand hydroelectric power.”
It’s tough to figure out how the ruling could “upset” water rights law, since it only deals with land ownership. Perhaps Hoffmann was just tossing that in as a scare tactic to irrigators and others who own dams, intimating that somehow they, too, might face future charges. As far as creating a disincentive for new or expanded hydro power, well, let’s just say PPL Montana got a bargain basement price when they acquired the dams from the former Montana Power Company since it was Montanans—the ratepayers—who had long ago paid for those dams through their power bills. Moreover, PPL Montana’s executives were brutal in negating their duty to continue to provide power to Montanans at what used to be a regulated rate of “cost of production” plus a profit margin, saying the company had “no obligation whatsoever” to provide low-cost power to Montanans.
The only downside to this episode is that, thanks to the disastrous 1997 decision by then-Gov. Marc Racicot and the Republican-dominated legislature to deregulate Montana’s electric utilities, PPL Montana remains an unregulated wholesale power producer. That means the back and future rent costs will undoubtedly wind up being passed through to NorthWestern Energy, which buys and distributes the power, and will then show up on our monthly bills. If there’s any consolation, besides making out-of-state mega-corporations play by the same rules as everyone else, it’s that the money will be helping fund Montana’s schools, which was the goal of the original lawsuit filed all those years ago.
Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at email@example.com.