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Helena Independent Record - "Utility Agrees to Pay Rent on Riverbeds"

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Location: Helena, MT

Helena Independent Record - "Utility Agrees to Pay Rent on Riverbeds"

A Spokane-based utility has agreed to pay Montana $4 million a year in rent to use the state-owned riverbed to generate electricity at its northwest Montana dam and reservoir — a move that narrowly avoided a trial over the matter.

Avista Corp., which owns the Noxon Rapids Dam on the Clark Fork River and the Cabinet Gorge Dam just across the border in Idaho, agreed to the settlement Friday, the last business day before a trial began here Monday over the dispute.

The agreement means just one company— PPL Montana, the state's largest private owner of hydroelectric dams — remains a defendant in the ongoing trial. Another dam-owner, PacifiCorp, of Portland, Ore., earlier agreed to pay the state $50,000 in rent for its Bigfork Dam on the Swan River.

At issue is whether private owners of dams should pay rent for the state-owned land underneath their hydroelectric dams and the rivers that generate electricity.

Attorney General Mike McGrath has argued that utilities are no different from ranchers who use state-owned land to graze cattle. Ranchers pay the state rent for the land and so should the utilities, he has said.

"If someone has a grazing lease, they pay," he said in an interview Tuesday. "If they drill oil or gas on state land, they pay a lease fee and a royalty fee."

McGrath said the Avista settlement only strengthens the state's case.

"I think this is a very good settlement for the people of Montana," he said.

David Hoffman, a PPL spokesman, said Avista's settlement didn't change anything for his company's court case, which he predicted would be lengthy and ultimately end up before the Montana Supreme Court.

"We're in for some long litigation," he said.

The state is seeking $6.2 million yearly rent from PPL, McGrath said. Negotiations with that company have essentially ended, and the trial is continuing this week before state District Judge Thomas Honzel in Helena.

Rent paid on state lands go to a fund that helps fund Montana's public schools. McGrath said the state has an obligation to maximize the profits from those lands, which includes charging rent to the power-generators.

PPL has argued they are regulated by the federal government, not the states, and have operated the dams rent-free for decades. The company also argues that the state is unfairly seeking rental payments from utilities that use state waters to turn a profit, but ignoring other water-users like irrigators or fishing outfitters.

Avista agreed to the settlement because trials carry the risk of losing, which could have cost the company more money, said Hugh Imhof, an Avista spokesman in Spokane.

"We have an obligation to serve our customers and the state was demanding $8.4 million in future rental payments," he said. "For us, it made sense to moderate that."

Avista, formerly Washington Water Power, serves about 350,000 utility customers in northern Idaho and eastern Washington.

PPL owns 10 dams that generate power from state-owned waters in Montana. It sells the power on the unregulated, wholesale market. Its customers include Montana's largest electric utility, NorthWestern Energy.

Honzel already has ruled on some of the other disagreements in the case. He earlier declared that lands under the dams are state-owned and that the rivers passing through them are navigable, which means they are state waters.

Honzel also ruled that lands flooded by the dams are not state-owned and therefore the state cannot charge rent for them.

Nonetheless, Avista agreed to pay some rent for the Montana land flooded by the Cabinet Gorge Dam, which sits just west of the Idaho-Montana border. It also agreed to pay rent for land occupied by the Noxon Rapids Dam and the Clark Fork River.

McGrath said Tuesday the state charged more for the land occupied by the dam because that land directly generates income for the company. He said the state charged less for the land under the river and even less for the land flooded.

The settlement with Avista has several caveats: If PPL comes out of the current trial owing less in rent for its larger dams, the state will lower Avista's rent. However, the agreement stipulates that the rent will not go above $4 million, regardless of the outcome of the trial.

In addition, the agreement requires both Avista and the state to revisit the rent in 10 years. At that time, both sides will negotiate a rental payment to last the remainder of Avista's federal license to operate the dam, about another 35 years, Imhof said.

Avista sells no electricity in Montana. The company owns several other dams in the Northwest, but does not pay state rent on those dams, Imhof said.

Imhof said the company intended to pass the rent fees onto its customers, if the regulators in Idaho and Washington agree to it.

The settlement is not entirely final. Honzel and the state Land Board, the panel of five elected officials who manage state lands, must agree to it.

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