Dam right: Mike McGrath wins one for Montana

If you happen to see Attorney General Mike McGrath in the coming weeks, give him a pat on the back and a hearty “attaboy” for his recent victory in round one of the state’s legal battle with the owners of Montana’s hydroelectric dams. His pending settlement agreement with Pacificorp, the utility that owns a small dam near Bigfork, sets a hopeful precedent and reaps just compensation to help fund Montana’s schools.

The wheels of justice turn slowly, and it’s been nearly four years since McGrath decided to join a lawsuit originally brought by the parents of Bozeman-area schoolchildren seeking to force the owners of hydroelectric dams on Montana’s major rivers to pay rent for occupying the state-owned riverbeds underlying their facilities. Although the original plaintiffs were disqualified for lack of standing, McGrath’s astute move assured the state could carry on the suit. The utilities initially reacted with angry denunciations of McGrath’s actions, and most still contend that they are federally licensed and therefore immune from paying leases for using the state lands.

McGrath is a member of the state’s Board of Land Commissioners, more commonly called the Land Board, along with the governor, the secretary of state, the state auditor and the superintendent of public instruction. The Land Board meets every month to vote on a plethora of issues revolving around the use of some 5.2 million acres of state lands—and the fees, rents and leases for doing so.

Nearly 4 million acres of that land is in agricultural use, both for farming and grazing, and everyone who runs a cow or raises crops on even one acre of state lands pays the state a fee to do so. Recreationists who bird-watch, hunt, fish or pick berries on state lands must have a valid conservation license, which includes a fee for the use of state lands, or buy a separate state lands-use permit. Likewise, every timber company that cuts even one tree from state lands must pay to do so, as well as meet a number of conditions designed to protect those lands for future generations. Oil, gas, and other mineral extraction operations must pay both lease fees and royalties on production. While the rate and fee amounts are open to debate and change, the one inescapable fact is that everyone who uses state lands in Montana pays for that privilege.

The reason everyone must pay derives from the Enabling Act, which dates to the very birth of the state in 1889. When Montana joined the United States, the federal government ceded millions of acres to the state for very specific purposes—the support of public education and institutions. Those purposes were further defined in Article X of the Montana Constitution, which establishes the Board of Land Commissioners, authorizes them to “direct, control, lease, exchange, and sell school lands,” and requires that 95 percent of the revenues derived from state lands be “equitably apportioned annually to public elementary and secondary school districts as provided by law” and that the remaining 5 percent be deposited in the permanent and inviolate Public School Fund.

In plain language, that means that almost every dollar that’s raised in rent from farmers, miners, loggers or recreationists using state lands is intended to help fund our schools and improve the future for our kids—as is the interest earned from the permanent fund.

The Land Board, as trustees of the state lands, have a fiduciary responsibility to ensure that those lands produce revenue for the beneficiaries of the trust (public schools and institutions), that they benefit the general public, and that the value of the trust is not diminished. Since the state owns the beds of all the rivers within its boundaries, McGrath and the other Land Board members voted in 2003 to join the lawsuit to force those who occupy those lands—the dam-owning utilities—to pay their fair share toward the education of Montana’s children.

While a trial is scheduled for October, Pacificorp chose to negotiate rather than litigate, accepting that paying rent for the use of state-owned lands is legitimate. As McGrath put it in briefing his fellow Land Board members, the Pacificorp agreement is “a complicated formula, but similar to settlements the Confederated Salish and Kootenai Tribes have on Kerr Dam, similar to leases for wind energy projects, and will serve as a template for negotiations and probably litigation with other companies.” The formula, which estimates that the small dam and reservoir occupy about 50 acres of state land below the high-water mark, is structured around a 10-year lease to coordinate with the re-authorization of the dam by the Federal Energy Regulatory Commission, and is based on a percentage of revenue produced by the facility.

As McGrath told the Land Board, under the provisions of the settlement Pacificorp will pay about $50,000 a year for the lease of the state lands. That’s money to fund schools that will not have to come from Montana’s already heavily taxed property owners. And while $50,000 is a drop in the bucket of Montana’s school funding formula, the revenue that would be generated from similar revenue-sharing agreements with the owners of the much larger dams and reservoirs throughout the state—such as Pennsylvania Power and Light (PPL) and Avista—would amount to millions annually to help fund our schools.

Montanans have suffered so much from the folly of utility deregulation that this small step toward recouping our losses is both helpful and hopeful. When PPL bought the former Montana Power Co. dams, its CEO infamously announced that the corporation had “no obligation” to provide Montanans with the low-cost power they had enjoyed in the past. Through his successful settlement agreement, Attorney General Mike McGrath has shown that turn-about is fair play—and that Montanans likewise have no obligation to provide out-of-state power companies with free use of state-owned lands.

Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at opinion@missoulanews.com.
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