Montana Dept. of Natural Resources and Conservation v. Intake Water Co.

• Citation: 558 P.2d 1110,171 Mont. 416
• Decision Date: 21 January 1977
• Docket Number: No. 13367,13367
• Parties: MONTANA DEPARTMENT OF NATURAL RESOURCES AND CONSERVATION, Plaintiff and Appellant, v. INTAKE WATER COMPANY, a Delaware Corporation, Defendant and Respondent.
• Court: United States State Supreme Court of Montana

Page 1110

558 P.2d 1110

171 Mont. 416

MONTANA DEPARTMENT OF NATURAL RESOURCES AND CONSERVATION, Plaintiff and Appellant, v. INTAKE WATER COMPANY, a Delaware Corporation, Defendant and Respondent.

No. 13367.

Supreme Court of Montana.

Submitted Oct. 28, 1976.

Decided Dec. 29, 1976.

Rehearing Denied Jan. 21, 1977.

Boone, Karlberg & Haddon, Missoula, Sam E. Haddon argued and William T. Boone appeared, Missoula, Ted J. Doney, appeared, Robert T. Cummins, appeared, Helena, for plaintiff and appellant.

Loble, Picotte & Pauly, Henry Loble, argued and Peter M. Pauly, argued, Helena, Boyd L. Henderson, appeared, Houston, Tex., for defendant and respondent.

HASWELL, Justice.

The Montana Department of Natural Resources and Conservation filed an action seeking a declaratory judgment that Intake Water Company does not have a valid appropriation of 80,650 acre feet per year of the waters of the Yellowstone River and enjoining Intake from use of the water. Intake counterclaimed for a declaratory judgment that it has complied with Montana water appropriation statutes to date and upon continued diligent prosecution of the excavation and construction of the diversion works to completion, it is entitled to relate the priority of its appropriation back to June 8, 1973. The district court, Dawson County, the Hon. Thomas Dignan, district judge presiding without a jury, entered judgment in favor of Intake. The Department of Natural Resources and Conservation appeals.

Plaintiff and appellant is the Montana Department of Natural Resources and Conservation (DNR), an administrative agency of the State of Montana created pursuant to Chapter 15, Title 82A, R.C.M.1947, whose duties include the administration of water use laws. Defendant, counterclaimant and respondent is Intake Water Company (Intake), a Delaware corporation and wholly owned subsidiary of Tenneco, Inc. Intake is authorized to do business in Montana and its corporate powers include the right to appropriate waters, acquire water rights, and sell the water to customers and users in the manner of a private water company, including the construction of dams, reservoirs and water transmission facilities.

The subject matter of this litigation is a project by Intake involving the appropriation of 80,650 acre feet per year of the waters of the Yellowstone River near the community of Intake in Dawson County, Montana. A diversion facility is to be constructed on land owned by the United States whereby water will be pumped out of the river, conveyed by pipelines to an off-stream storage reservoir, and from there distributed by pipelines to the service area. Intake intends to sell the water to its customers for irrigation, industrial, municipal and domestic use.

The service area or area of intended use of the appropriated waters are portions of Dawson and Wibaux Counties in Montana and a portion of Golden Valley County, North Dakota. The service area lies generally in a southeasterly direction from the point of diversion some 30 miles. This area contains large coal reserves which form a large part of the water demand for the project. The size of the service area was primarily determined by the extent of usable coal reserves.

DNR claims that the intended use of the appropriated waters is primarily for a coal gasification plant for the production of synthetic gas to supplement declining natural gas reserves. Jack Tindall, general manager of Intake and an official of Tennessee Gas Transmission Company, a Tenneco subsidiary, which is a major natural gas pipeline system that supplies gas to its customers, testified that he became involved in the Intake project because Tenneco and its subsidiaries were looking for alternate supplies of natural gas and water is needed to convert coal to gas. While denying that Tenneco or its subsidiaries had any specific plans to construct a coal gasification plant at the time of trial, he admitted they were working on it and that Tenneco and its subsidiaries could be one of the industrial customers for water from the Intake project. Tindall testified that he made the determination of the amount of Intake's appropriation-80,650 acre feet per year- by the amount needed to utilize the coal in the area of intended use (64,000-65,000 acre feet annually) plus other uses and losses that would bring the total to 80,650 acre feet per year.

The off-stream reservoir involved in the project will be approximately 25,000 acre feet in capacity and will inundate approximately 700 acres of land. The purpose of this reservoir is to permit diversion of the river waters during periods of surplus waters and storage of such waters for use during the periods of low water in the river. This system, it is claimed, will minimize the impact of the diversion on the river itself and insure the availability of water for prior appropriators and users downstream.

There is an existing dam that creates a backwater in the river at the diversion site which permits the taking of water without the cost and environmental consequences of constructing another diversion dam across the river.

The project contemplates removal of waters from the Yellowstone River basin and sale of some of these waters outside the basin in North Dakota. Such removal requires unanimous consent of Montana, North Dakota and Wyoming under Article X of the Yellowstone River Compact and requires consent of the Montana legislature under section 89-846, R.C.M.1947. Neither consent has been secured to date. Intake commenced an action in federal court in June, 1973 to have section 89-846 and Article X of the Yellowstone River Compact declared unconstitutional. (Civil Docket No. 1184, United States District Court for the District Court of Montana, Billings Division). This suit has not been concluded to date.

According to the testimony of Jack Tindall, general manager of Intake, the project would still be economically feasible if industrial users were excluded and only agricultural, municipal and recreational users remained provided these latter users could pay the price to provide a fair return on the capital expended for the project. There is no substantial evidence indicating whether the project would remain economically feasible if users outside the Yellowstone River basin were excluded.

On June 29, 1973 Intake commenced a suit in state court seeking determination of whether it must comply with the provisions of the Montana Major Facility Siting Act (Ch. 8, Title 70, R.C.M.1947, as amended) in constructing its diversion works for appropriation of the waters of the Yellowstone River. (Civil Docket 36907, district court, first judicial district, State of Montana, Lewis and Clark County.) This suit remains unresolved to date.

During the period since inception of the project in November, 1972 through September, 1975, Intake has expended $331,700.39 on site-related activities, engineering, market studies, environmental activities, legal fees and administrative expenses directly attributable to construction of the project.

On June 8, 1973 Intake posted its notice of appropriation of the waters at the point of intended diversion and filed notices of appropriation thereafter with the county clerk in each Montana county through which the Yellowstone River flows as required by section 89-810, R.C.M.1947.

Thereafter Intake took the following identifiable action in the 40 day period following June 8 pursuant to section 89-811, R.C.M., requiring the appropriators to '* * * proceed to prosecute the excavation or construction of the work by which the water appropriated is to be diverted * * *':

(1) In addition to filing copies of the notice of appropriation with the various county clerks and recorders, Intake filed copies of the notice with the director of DNR and the North Dakota State Water Commission.

(2) Intake selected, staked and flagged locations for five test hole borings at the site of the proposed diversion works to test subsurface soil conditions.

(3) Intake hired a Billings testing laboratory to make the test hole borings and went to the site twice with them to accomplish the same.

(4) Secured a license from the Bureau of Reclamation to construct, operate and maintain a pumping plant at the proposed diversion site.

(5) Filed and proceeded to prosecute the state court suit to determine whether Intake must comply with the Montana Major Facility Siting Act with respect to construction of its diversion works.

(6) Filed and proceeded to prosecute the federal court suit to determine the constitutionality of section 89-846 and Art. X of the Yellowstone River Compact.

(7) Contacted environmental consultants and governmental agencies with respect to required environmental work on the project.

(8) Continued the ongoing drafting of preliminary engineering plans for construction of the diversion works.

(9) Continued the ongoing selection, pricing and availability of equipment for the diversion works.

(10) Continued the ongoing legal and administrative work necessary to construction of the diversion works and completion of the appropriation.

(11) Commenced and continued preparation of the design drawings of the diversion works.

Following this 40 day period up to the time of trial, Intake sponsored a paddlefish study proposed by the Montana Fish and Game Department at a cost to Intake of $5,000; defended the instant suit; hired an environmental consulting firm in Billings to conduct an environmental literature search at a cost to Intake of $4,000; hired an engineering firm in Billings to conduct a preliminary engineering survey of the proposed diversion including hydrology studies, a recommended operating plan, and identification of three potential locations for an off-stream reservoir; hired a Houston, Texas firm to perform topographic mapping including topographic contours of 61,660 acres o land in the vicinity of Intake to enable Intake to select reservoir sites, pipelines, and aqueduct routes at a cost...