                                   NO. 83-323
               IN THE SUPREME COURT OF THE STATE OF MONTANA




THE MONTANA POWER COMPANY,
A Montana Corporation,

                            Petitioner, Respondent and
                             Cross-Appellant,



MARTIN CAREY, WALT DUTTON; JESSIE
S. FELSHEIM; SUSANNE L. HUCKABA;
MARY LEAVITT; ROBERT McDOWELL; REMI
and BETTY JO MONFORTON; DEPARTMENT OF
NATURAL RESOURCES AND CONSERVATION:
FRANK SHAW; JIM SIMONISH; and NORMA
and ERNEST TEBAY,
                          Defendants and Appellants,

         and

IN THE MATTER OF THE APPLICATION FOR
BENEFICIAL WATER USE PERT4IT NO. 24921-s41e
BY REMI and BETTY MONFORTON,

                            Petitioners and Respondents.



Appeal from: District Court of the First Judicial District,
             In and for the County of Lewis & Clark,
             The Honorable W. W. Lessley, Judge presiding.

Counsel of Record:

                For Appellants:

                    Leaphart Law Firm, Helena, Montana
                    W. William Leaphart argued for Felsheim & Huckaba,
                     Helena, Montana
                    Robert Lane argued for D.N.R., Helena, Montana
                    Nicklas & Kline, for Dutton & McDowell, Helena, Montana

                For Respondents:

                     Moore, Rice, O'Connell & Refling, Bozeman, Montana
                     David C. Moon argued for Monfortons, Bozeman, Montana
                     Gouqh, Shanahan, Johnson & Waterman, Helena, Montana
                     Ronald Waterman argued for Mt. Power, Helena, Montana

                For Amicus Curiae:

                     Ted J.Doney, Montana Water Development Assoc.,
                      Helena, Montana



                                            Submitted:     Marc11 7, 1984

                                                Decided:   June 2 8 , 1984
      '*liJ'$ d d 1984
Filed:
         /-'                       J


                         ~~--&*~-~w~+

                                    Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion sf
the Court.
     This appeal arises        from two consolidated cases that
originated as petitions for judicial review of a Department
of Natural Resources and Conservation (DNRC's) final order
which granted the Monforton's beneficial water use permit.
     Monfortons applied for the use permit in October 1979 to
appropriate water     from Cold Springs, a tributary of the
Boulder   River.     Montana    Power Co.    (MPC) and   downstream
irrigators     (Huckaba/Felsheim)    filed     timely    objections.
Subsequent to a public hearing where applicants and all
objectors were represented, the DNRC issued a final order
granting the permit conditioned upon specific restrictions.
     Petitions for judicial review filed by Monfortons and
MPC were consolidated to be heard in the District Court of
the First Judicial District Lewis and Clark County, Honorable
W.W. Lessley presiding.    Upon review, the court held that the
DNRC exceeded its statutory authority by imposing restrictive
conditions on the permit and reinstated the water use permit
in accordance with the terms of the Monforton's application.
Pursuant to Monforton's subsequent motion, the District Court
imposed      reasonable   attorney's    fees     upon     MPC   and
Huckaba/Felsheim.
     Both MPC and Huckaba/Felsheim filed notices of appeal
concerning both     the granting of the use permit and          the
taxation of attorneys fees.
    Monforton's permit application sought authorization to
divert 1,575 gallons per minute up to 623 acre-feet per year
from April 15 through October 15 of each year from Cold
Springs for sprinkler irrigation on 331 acres of land in
Jefferson County, Montana.
        The objectors to the Monforton application collectively
assert that insufficient unappropriated water flows in Cold
Springs to satisfy both existing rights and the Monforton's
proposed diversion.        Montana Power Company (MPC), a Montana
corporation, owns and operates six hydroelectric generation
facilities located on the Missouri River downstream from the
Monforton's     proposed   diversion point.         Numerous existing
water rights are appurtenant to these hydroelectric plants.
Jessie Felsheim and Susanne Huckaba are members of a group of
senior water right holders whose            lands are also located
downstream from the Monforton appropriation site.
      DNRC's final order granted the Monforton's water use
permit subject to the following limitations:

        (1)    The quantity of water to be           appropriated was
reduced from 623 acre-feet per year to 400 acre-feet per
year.
        (2)   The period of time during which the appropriation
could be made was limited to a period of time running from
April 15 to August 1, rather than from April 15 to October
15.
        (3)    The permit was made      subject to all prior and
existing rights.

        (4)     The   permit   was   made   subject    to   the      final
determination of all prior and existing rights.

        (5)     The   diversion   authorized   by     the   permit    was
expressly limited to times when Montana Power's Cochrane Dam
is spilling water.
      Upon review, the district court held that:
        (1)   The DNRC violated statutory provisions found in the
Water Use Act by limiting the Monforton's period of use to a
period ending August 1, and
     (2) The conditions and limitations placed on the permit
by the DNRC substantially prejudice the Monfortons' right to
appropriate water.
     To correct these errors, the trial judge granted the
Monforton's permit and modified the DNRC's final order:
     (1)    To allow a period of use running from April 15 to
October 15;
     (2)    To allow diversion and appropriation of up to 623
acre-feet per year; and

     (3)      To   remove   the   condition that Montana         Power's
Cochrane Dam be spilling before the Monfortons can divert
water.
     From   the    District   Court's      judgment   and   subsequent
determination of      attorneys'    fees    the    defendants    appeal.
Although numerous questions are presented upon appeal, this
court finds the following issues dispositive:
     (1)    Whether sections 85-2-311 and 85-2-312, MCA grant
the DNRC the authority to control and condition beneficial
water use permits?
     (2)    Whether there is substantial credible evidence to
support the DNRC's order?

     (3)      Whether   the   District     Court    erred   in   taxing
reasonable attorneys fees and costs?
     Section 85-2-312, MCA provides           in pertinent part as
follows:

    "Terms of permit. (1) The department may issue a
    permit for less than the amount of water requested,
    but in no case may it issue a permit for more water
    than is requested or than can be beneficially used
    without waste for the purpose stated in the
    application.      The    department   may    require
    modification of plans and specifications for the
    appropriation or related diversion or construction.
    - may issue - permit subject to terms, conditions,
    It           a
    restrictions,   and    limitations   it    considers
    necessar    to protect     the right?     of other
    approprixtorx and it may issue temporary or
     seasonal permits. A permit shall be issued subject
     to existing rights and any final determination of
     those rights made under this chapter.

    " (2)   The department may limit the time for
    commencement of the appropriation works, completion
    of construction, and actual application of the
    water to the proposed beneficial use.     In fixing
    those time limits, the department shall consider
    the cost and magnitude of the project, the
    engineering   and    physical   features    to   be
    encountered, and, on projects designed for gradual
    development and gradually increased use of water,
    the time reasonably necessary for that gradual
    development and increased use.      For good cause
    shown by the permittee, the department may in its
    discretion reasonably extend time limits."
     To hold that the DNRC does not have authority to grant
condi-tional use permits belies the plain language of this
statute which clearly grants such power.    Restrictions must
be necessary to protect the rights of prior appropriators or
he related to time limits to perfect the water right under
the permit.   Without such authority, the DNRC could only
grant an application as applied for, or deny it, resulting in
a permit system creating inchoate rights.   Such uncontrolled
development of a valua.ble natural resource contradicts the
spirit and purpose underlying the Water Use Act.
     State ownership of the water resource was recognized
early in the evolutionary stages of water law.
    "[Tlhe state     of   Montana   has   by   necessary
    implication assumed to itself the ownership, -   sub
    modo, of the rivers and streams of this state, and,
    .  ..   has   expressly   granted   the   right   to
    appropriate the waters of such streams, which right
    if properly exercised      .      .  vests in the
    appropriator full legal title to the use of such
    waters by virtue of the grant made by this state as
    owner of the water."    Smith v. Denniff (1900), 24
    Mont. 20, 21-22, 60 P. 398 (erphasis in original).
                    v.
    -- Allen - Petrick, supra, 69 Mont. at 377;
    See also,
    and Mettler v. Ames Realty - (1921), 61 Mont.
                                  Co.
    152, 161, 201-P. 702.
     State ownership of the water resource was asserted in
unambiguous terms by the 1971 Montana Constitution.
    " (3)    All surface, underground, flood, and
    atmospheric waters within the boundaries of the
    state - - property - - State for the use of
          are the         of the
        its people and are subject to appropriation for
        beneficial uses as provided by law. " Mont. Const.
        Art. IX, S3 (1972) (emphasis added).                  t




        Prior to 1973, when the Water Use Act was enacted,
neither of the two distinct methods of acquiring water rights
provided    the state any control over acquisition of this
state-owned natural resource.             The first statutory method of
appropriating        water,     legislated       in   1885,       required        a
prospective appropriator to post written notice at the place
of intended diversion, and within twenty days of posting to
file similar notice with the clerk and recorder in the county
of the proposed diversion.           Sections 89-810 through 89-814,
R.C.M.,    (1947).        Since the legislature did not declare this
statutory method          the exclusive method of acquiring water
rights, the historical mining and local customs remained
effective giving a water right to any individual who diverted
water     from a water        source and       applied   the water          to   a
beneficial use.           Bailey v. Tintinger (1912), 45 Mont. 154,
169, 122 P. 575.           The absence of a public record made the
court's     task     of     determining    the    relative        priority       of
conflicting claims to use the water resource an impossible
task.     The State had no means to regulate proposed water uses
to accommodate available water flows and protect existing
senior water rights nor to insure that the public interest
was .being promoted.
        The Water Use Act, Section 85-2-101 et seq., MCA, was
enacted in 1973.           As the culmination of consistent urgings
for     reform,    it      "substituted    a   new    procedure       for    the
appropriation of water rights,            . . .."     General Agriculture
Corp. v. Moore          (1975), 166 Mont.      510, 512, 534 P.2d            859.
This reform was formulated upon beliefs similar to those
expressed earlier by Mr. Elwood Mead, Wyoming's first State
Engineer:
     "[Ilf state ownership is to be anything but a
     delusion, if it is to be more than nominal, there
     must be the same authority and control over streams
     and over diversion of water as is now exercised by
     the general government over the occupation and
     settlement of public lands       ...
                                       Such oversight and
     precaution is necessary for the proper protection
     of public interests       . .    .
                                     and in order that
     controversies growing out of extravagant and
     injurious claims may be avoided." Wyoming Hereford
     Ranch v. Hammond Packing Co. (1925), 236 P. 764,
     769.
     The Water Use Act emphasizes the .underlying policy of
state participation in water appropriation "to recognize and
confirm all existing rights to the use of any waters           . . .."
Section 85-2-101 (4), MCA.       This unambiguous language of the
legislature promotes the understanding that the Water Use Act
was designed to protect senior water rights holders from
encroachment by     junior    appropriators adversely        affecting
those senior rights.         Section 85-2-312, MCA mandates the
state's authority to afford such protection.
     The record of the trial proceeding contains substantial,
credible evidence     that    the water     supply   source in Cold
Springs was inadequate to sustain the Monforton's proposed
appropriation along with existing senior rights without the
restrictions imposed by the DNRC.
     Diana C.    Fitz, a hydrologist for the Department of
Natural Resources, in the Water Sciences Bureau, compiled a
report   entitled   "Analysis of      Water   Availability    on   the
Missouri River Above Canyon Ferry Reservoir."          Based on this
documentation,      Ms.      Fitz I   testimony      confirms      the
unavailability of water subsequent to the August 15 cutoff
date imposed by the DNRC:
     "Based on the data I had from Bureau of Reclamation
     and the U.S.G.S. I found that water was available
     during a short period of time during the spring and
     extending through at least a majority of irrigation
     season, on occasion. Basically, I found, for the
     most part, there was no water available 40% of the
     years.   And, that during the other 60% of the
     years, there would be some water extending as long
      as possibly the beginning or maybe 9th or 10th of
      August."
      Representing Montana Power Co., Mr. Don Gregg testified
that:      (1) the Cochrane facility has the largest turbine
capacity of putting water to beneficial use on the Missouri
River, (2) the turbine rating is about 10,000 cubic feet per
second;    (3) the Cochrane plant        has very    limited storage
capability, which handles daily fluxuations in the river, but
no seasonal storage; and (4) when the Bureau of Reclamation's
rights have been satisfied at Canyon Ferry and the excess
water is spilled, Cochrane utilizes only 27% of that spillage
to satisfy MPC's water rights for beneficial use.
      Using hydrographs depicting available water flow over
the     past    twenty   years,   Mr.   Gregg's   further   testimony
supported the lack of unappropriated water after the August
15 date restriction imposed on Monforton's beneficial use
permit :
      "Q: Taking that into account, what would be your
      testimony, as to the        ...
                                   shall we say, the time
      window when water may be available or flowing in
      the river above 10,000 c.f.s?
      "A.       ...on the basis of the 19 or 20 years
      history tabulated on this exhibit, that there will
      be around 71 days, starting on        ...
                                            around April
      30 and ending on around July 10. When water will
      be available in        . . .
                                 anywhere in the Upper
      Missouri Basin, above Great Falls, in excess of
      that that we can use at Great Falls, at the
      Cochrane plant."
      Based upon this credible testimony the District Court's
judgment is reversed and the DNRC's final order is reinstated
granting       the   beneficial water   use permit   conditioned by
appropriate restriction.
      In conjunction with this ruling, the Monforton' s claim
for attorney's fees must be denied.        Since the final order of
the DNRC is affirmed., the Monfortons are not the prevailing
party and cannot recover attorney fees from the respondents.
     Reversed.




We concur:




       /
 Justices


 lionorable Thomas A. Olson,
 District Judge, sitting in
 place of i r Justice John
            4.
 C. Sheehy




District Judge Thomas A. Olson, sitting in place of Justice
Sheehy dissents:
     I agree with the majority that the Department of ~atural
Resources and Conservation (DNRC) has statutory authority to
impose conditions or limitations on a new water permit to
ensure that senior appropriators are not left short of water.

In this case, I would approve of DNRC's condition that Monforton
not irrigate if the senior users needed water.   The practical
effect of such a limitation would vary from year to year,

depending upon the availability of water for irrigation.    AS
I shall point out herein, such a limitation makes good sense
because of the unpredictability of our Montana weather.     Despite
the advances made by science, our technology cannot tell us
what quantity of water is going to be available in future
years.   However, DNRC went much further in this case and
attached another limitation on Monforton:     no irrigation in
                                -
August, September or October of any year.
     My dissent, therefore, is to this last condition formulated
by DNRC which, in effect, attempts to predict the future water
availability, thus resolving any doubts against Monforton, and
in favor of the senior appropriators.   For over a hundred years
Montana water law was based on simple practicality.    If there is
water available, then it should be put to a beneficial use in
this arid state.   For example, this Court long ago endorsed
the idea that the first persons to put water to a beneficial
use received a right that had priority over others who came
                                                152
later.   Mettler v. Ames Realty Co., 61 Mont. P55, 201 P. 702 (1921).
To balance what might, on its face, seem to be an invitation to
waste or abuse water, this Court recognized a counterbalancing
obligation that a senior water user could appropriate only that
amount of water that he could beneficially use, and which was
necessary for his purposes.   Custer v. Missoula Public Service Co.,
91 Mont. 136, 6 P.2d 131 (1931); Zosel v. Kohrs, 72 Mont. 564,
234 P. 1089 (1925); and Norman v. Corbley, 32 Mont. 165, 79 P.
1059 (1905).   This Court held that a senior water user had an
obligation to leave in the stream water he could not put to use
so that the water was available for others.    Tucker v. P4issoula
                       3+                                 CT&
Light and Water Co.,    Mont. 91, 250 P. 11, 15 (1926); ~   v          .
                                 l a
Bozeman Waterworks Co., 15 Mont. &, 38 P. 459, 461 (1894); and,
Zosel v. Kohrs, supra, at 1093.   Indeed, those who followed after
the senior appropriator could use the available water without
obtaining his permission.        Custer v. Missoula Public Service Co.,
supra, at 134.        See also, Zosel v. Kohrs, supra, at 1093: Norman v.
Corbley, supra, at 1060; and Tucker v. Missoula Light and Water Co.,
suwra. at 15.
        This is not to say that all was well with Montana water
law.     The system had serious defects.     Professor Albert Stone
has noted these:
        1.     Legislative attempts to require water users to
               file a notice of appropriation were ineffectual.
        2.    County water records were virtually useless in
              determining the amounts of water actually being used.
        See Stone, "Montana Water Rights--A New Opportunity,"
        34 Montana Law Review at 68.
        In 1973, the legislature adopted the Water Use Act, presum-
ably to correct these and other defects.           In its stated policies,
the legislature again endorsed the time-tested basis for Montana
water law:        that water resources of the state be put to optimum
beneficial use and not wasted.       Section 85-1-101(1), M.C.A.,
1983.    As between appropriators, the first in time is the first
in right.        Section 85-2-401, M.C.A., 1983.    An irrigator who
diverts more water than he can "actually and necessarily" use
must return it to the stream for others.       Section 85-2-412, M.C.A.,
1983.        The district court, not DNRC, was given jurisdiction to
supervise the distribution of water among appropriators.          Section
85-2-406, M.C.A., 1983.       Aggrieved senior water users retained
their traditional access to the district court.          Section 85-2-406,
M.C.A., 1983.
        To solve the notice and recordation problems, all new
applicants were to petition DNRC for permission to divert and
use water through a permit system.       Section 85-2-302, M.C.A.,
1983.        The department was obligated to issue a new water permit
if the applicant "by substantial credible evidence" showed there
was water available and the rights ofotherswould not be adversely
affected.    Section 85-2-311, M.C.A.,   1983.   Based on the context
in which this new act came into being, I can only conclude that
the legislature was determined to preserve the best of our hundred-
year experience with the use of water in this state, supplemented
by a workable regulatory scheme.
     By conditioning Monforton's use of water to times when the
senior appropriators, including Montana Power's Cochrane Dam,
needed water, DNRC clearly found that there was substantial
credible evidence that water was available and the rights of
others would not be adversely affected as required by section
85-2-311, M.C.A., 1983.    Having so found, the department added
the objectional condition, that there could be no irrigating by
Monforton from and after August 1 of every year.      The only expla-
nation that I can attach to the department's actions, having
found water available earlier in any year, is that this would
allow Monforton's permit to clutter the records by showing the
right to use water in the fall, when the likelihood was there
would not be enough water available for him.      Thus it could be
argued our water records would be headed back down the road from
whence we had come, records showing water usage but with no
assurance that the water user was actually in a position to use
the water described.
     I find this kind of analysis implicit in the majority
opinion.    I also find it unpersuasive.   The department, supported
by the majority opinion, is splitting hairs here.      It finds a
new irrigator can irrigate for the first half of the season, with
the senior appropriators protected by the conditions of the permit,
                  -
but since there may not be water in the second half, a flat
prohibition is issued.   I am unable to find clear legislative
authority for such arbitrary conditions, when we have the
assurance that in all events the senior water users will be
protected.
     Traditionally, "substantial evidence" has been held to be
different, and less stringent than "a preponderance of evidence".
Strachan Shipping Co. v. Shea, 276 F.Supp. 610 (1967).   I would
find that Monforton's proof which the department found, sub-
stantial and credible for the first half of the irrigation
season sufficient to authorize a water permit for the entire
season, subject to protecting the senior users.
     Looking at the record in this particular case, I find there
is evidence to support a finding that Monforton could irrigate
in August, September and October.   Lest the uninformed reader
think irrigators only use water in the spring, one need only
travel the back roads of Montana to see prudent farmers building
up soil moisture in the fall.
     Starting with the obvious, Monforton stands to lay out
significant sums of money for an irrigation system, which speaks
convincingly that he believes there is excess water, either
from extra moisture or from non-use of the other appropriators.
The senior appropriators could not agree among themselves on
when extra water was available in the Boulder River after August 1.
Sonny Huckaba testified that the river was usually dry in August
but that there were wet years with more than enough water to
meet his needs.   Shaw testified that there was never water after
the 1st of August.   Montana Power's evidence was also disputed.
MPC is contesting new appropriations in the upper Missouri River,
to protect its generating facility at Cochrane Dam, near Great
Falls, which has only limited storage capabilities.   But DNRC
seems not to have given much credence to MPC's concern because
the record shows it issued recent water permits with dates late
into the fall.     (September 15 for Brown, 12016-s41G, October 15
for Lane, 11493-s41G, and October 15 for Robbie, 20301-s41F)
Even DNRC's reports were not entirely consistent with when and
where there was water in the Boulder for extra irrigation.     So
an objective view of the record leaves the reader with an
impression that the extra water is an "off and on" proposition.
Given the vagaries of our Montana weather, this should come as
no surprise.    But one would think that all this uncertainty would
be taken into consideration when DNRC attached the usual pro-
tection for senior appropriators, including the admonition to
Monforton to irrigate only when Montana Power was "spilling
water" over the top of Cochrane Dam.    However, as I have indicated,
DNRC went further and prohibited any fall irrigation.
     Reduced to its bare essence, as I see it, the majority is
holding that even though the senior appropriators are protected
by the first condition, the integrity of the filing system is to
be protected at the cost of limiting a new irrigator, even though
there are times that water might be available in the prohibited
time period.    This, to me is exalting form and procedure over
substance.     Up to this point in time, we have been telling the
!qonfortons of this state, "put all the water you can to a
beneficial use."     Now we say, "DNRC's records come first, and
if there is a doubt there will be no water usage, even if water
is available in the future."     I do not believe it is in the best
interests of this state, nor did the legislature envision, giving
authority to a state agency to act in such an arbitrary or
capricious manner.
       I would approve t h e i s s u a n c e o f a p e r m i t t o u s e w a t e r

t o Monforton, c o n d i t i o n e d o n l y t h a t he n o t u s e w a t e r when t h e

s e n i o r a p p r o p r i a t o r s had need f o r t h e w a t e r under t h e i r p r i o r
rights.      I would a f f i r m Judge L e s s l e y ' s d e c i s i o n f o r t h e

reasons s t a t e d .




                                                     Honorable Thomas A. Olson,
                                                     s i t t i n g i n place of
                                                     M r . J u s t i c e John C. Sheehy
