                                No. 8 8 - 1 0 0

                IN THE SUPREVP COURT OF THY STATE OF MOFTANF




PORTLANG GENERAL ELECTRIC COMPANY,
                                                                4   ,



                 Plaintiff and Appellant,
         -vs-
MONTANA DEPARTMENT OF REVENUE,
et al.,
              Defendants and Respondents.




APPEAL FROM:     District Court of the First Judicial District
                 In and for the County of Lewis & Clark,
                 The Honorable Henry L o h l e , Judge presiding.


COUNSEL OF RECORD:
         For Appellant :
                  Donald R. Murray; Murphy, Robinson, Heckathorn &
                  Phillips, Kalispell, Kontana
                  Thomas H. Nelson argued; Stoel Rives, Roley, Jones    h
                  Grey, Port1 and, Oregon
         For Respondent:

                  Larry G. Schuster argued, Department of Revenue,
                  Helena, Montana



                                     Submitted: February 28, 1989
                                        Decided: May 10, 1989

Filed:
Mr. Justice John Conway ~arrisondelivered the Opinion of the
Court.

      Appellant, Portland General Electric (hereinafter PGE),
appeals an order entered by the Honorable Henry Loble, ~ i r s t
Judicial District Court, Lewis and Clark County, Montana,
denying injunctive and declaratory relief. We affirm.
      This case concerns the imposition of beneficial use
taxes, pursuant to $ 15-24-1203, MCA (1983), for appellant's
use of the Hot Springs to Idaho Border portion of the BPA 500
kilovolts (KV) transmission line system within the State of
Montana.
           [Tlhere is imposed and shall be collected
          a tax upon the possession or other
          beneficial use enjoyed by any private
          individual, association, or corporation
          of any property, real or personal, which
          for    any    reason   is    exempt   from
          taxation  ...   The tax shall be imposed
          upon the possession or other beneficial
          use of an electric transmission line and
          associated facilities, except that lines
          and facilities of a design capacity of
          less than 500 kilovolts shall not be
          subject to the tax.
Section 15-24-1203, MCA.
      Much of the factual background surrounding this case
has previously been discussed in our decision, pacific Power
&  ~ i g h tCo. v. Department of Revenue, No. 88-151, decided
April 17, 1989.       Therefore, we will limit the extensive
background discussion and instead focus on the additional
facts relevant to this case.
        PGE is an investor-owned utility which provides retail
electric utility service to customers located in the State of
Oregon. PGE owns an undivided 20% interest in Colstrip Units
IIi and IV, which began operation in October of 1983 and
1985, respectively.      The other four Colstrip owners are
Pacific   Power   &   Light   Company,   washington   Water   Power
Company, Puget Sound Power & Light Company, and Montana Power
Company.    Collectively, these companies are referred to as
the "Colstrip Owners."
       With the development of Colstrip Units I11 and IV,
additional transmission capacity was needed from the Colstrip
facilities to the west.        To accommodate the increased
generation, Colstrip Owners initially converted one 2 3 0 KV
line extending from the generating facilities to a substation
near Broadview, Montana, to 5 0 0 KV and constructed a second
5 0 0 KV line.   From the Broadview substation, the Colstrip
Owners' 5 0 0 KV lines extend westward to a point near
Townsend, Montana. At Townsend, the Colstrip Owners' 5 0 0 KV
lines interconnect with the Bonneville Power Administration's
(BPA) 5 0 0 KV lines. The portion extending from Townsend to
the BPA's Garrison substation is referred to as the Montana
Intertie, and is extensively discussed in our previous
opinion, Pacific Power & Light Co.    In 1986, anticipating
the completion of Colstrip Unit IV, the BPA, at the request
of the Colstrip Owners, completed the Garrison-West lines
connecting the Garrison substation to the Taft , Montana,
substation and points to the west. Prior to the completion
of the Garrison-Taft 5 0 0 KV transmission lines, the Hot
Springs-Dworshak lines were the only existing 500 KV lines
providing access to the west.
      From the BPA substation at Garrison, Montana, the
transmission of Colstrip power is governed by separate
contracts, commonly referred to as the Garrison-West
Agreement.   These contracts continue for a period of 22
years, with a right to renew at comparable terms. Under each
Owners' separate contract with the BPA, power would be
introduced at the ~arrisonsubstation and transmitted across
the entire BPA "main grid" which included both 230 and 500 KV
 lines.     Notably, appellant entered into no other agreement
 for the transmission of its Colstrip power to points west.
         Under the terms of PGE's agreement with the BPA, PGE
 requested BPA provide adequate transmission facilities west
 of Garrison, Montana, to transmit power on a firm basis over
 the Federal Transmission System to PGE's system load at the
 Pearl substation in Oregon. PGE made available and BPA was
 required to accept scheduled power not to exceed the reserved
 transmission demand set forth on Exhibit D of the
 Garrison-West Agreement.      Exhibit D provided that from the
 date of commercial operation of Colstrip Unit I11 until the
 date when the 5 0 0 KV transmission lines connecting Garrison
 to the Federal 5 0 0 KV transmission system first became
 available for scheduling power (the ~arrison-Taftlines), the
 transmission demand for PGE was zero. However, a footnote to
 Exhibit D provided for the five Colstrip owners to allocate
 BPA's available 3 3 0 megawatts transmission capacity.
        At this point, a brief explanation describing the 3 3 0
megawatt limitation is in order.             From the Garrison
 substation to points west, the BPA lacked transmission line
 capacity to accommodate full transmission of Colstrip power
 to the Owners' individual system loads.          This lack of
"transmission capacity is due to a gap in the 5 0 0 KV lines
 between the Garrison substation and the Hot Springs
 substation, referred       to   in   this litigation as the
 "bottleneck." Between the two substations, the BPA had only
 2 3 0 KV lines, which proved insufficient to accommodate the
 total scheduled Colstrip power. Recognizing its inability to
 fulfill obligations under the Garrison-West Agreements, the
 BPA imposed a 3 3 0 megawatt limitation upon the amount of
 power which could be scheduled west of the Garrison
 substation, until the Garrison- aft 5 0 0 KV lines were
 completed.
      On December 20, 1983, a Montana Power Company
representative contacted BPA officials indicating Colstrip
Owners had reached an agreement on the allocation of BPA's
330 megawatts. Respectively, PGE was allocated 65 megawatts
transmission demand. The reserved amount is reflected in a
revised Exhibit D to the PGE's ~arrison-WestAgreement.   In
turn, the BPA responded on February 4, 1984, stating:
         This is to confirm that each of your
         companies [Colstrip Owners] has sent BPA a
         letter   agreeing   with    the   allocation,
         contained in The Montana Power Company's
         letter dated December 20, 1983, of the 330 MW
         of transmission capacity available to the
         Colstrip owners on BPA1s Garrison-Hot Springs
         transmission line during the period starting
         with commercial operation of Colstrip unit
         No. 3 and ending at 2400 hours on the date
         when the Garrison- aft 500 kV transmission
         line is available for scheduling power,
         pursuant to existing contracts for wheeling
         Colstrip power.


                                           Transmission
          Company       ~onnevilleContract No.   Demand
          ...
          Portland      DE-MS79-81BP00167          65 MW

      Once scheduling of Colstrip power over the Hot Springs
to border line began, PGE was required to pay BPA a monthly
charge calculated pursuant to the terms of the Garrison-West
Agreement.   The transfer of energy was "deemed" to have
occurred   whether  or   not  there was   actual physical
transmission.   Therefore, the monthly charge was due BPA
regardless of PGE1s actual transmission flow across the
lines.
      Beginning in the tax year 1985, the Department of
Revenue   (DOR)      imposed   taxes   upon   appellant    for   its
"beneficial use" of the BPA 500 K V transmission lines from
Hot Springs to the Idaho border.     The assessment was based
upon a report submitted by PGE, pursuant to Rule 42.22.107,
ARM, stating that it "had no possession or use of a
government-owned transmission line in 1984; it had only a
contract right to certain services provided by the ~onneville
Power Administration ("Bonneville") on the 500-kilovolt
transmission line" between Townsend-to-Garrison and Hot
Springs-to-Idaho border. The other Colstrip Owners did not
submit similar reports to the DOR.        The DOR prepared a
beneficial use assessment for PGE using the unitary approach.
Initially, the DOR assessed PGE's use of the Hot Springs to
border lines based upon the capitalized payments made by PGE
to the BPA in 1984.          However, shortly before trial,
depositions revealed such payments represented charges for
the use of both 230 and 500 KV lines. Thereafter, the DOR
prepared a revised assessment excluding the effect of
tax-exempt 230 K V lines.
      Appellant presents eight issues on appeal, each of
which would invalidate the imposition of the challenged
taxes.   Three of the issues arise under the United States
~onstitution, three under the Montana Constitution and two
are statutory challenges. However, our decision in Pacific
Power & Liqht, Co. forecloses appellant's arguments of the
first seven issues.       Therefore, our opinion will deal
exclusively with appellant's eighth issue contending that a
portion of the beneficial use tax assessment was attributable
to exempt property.
      This case comes to us against a backdrop of extensive
technological changes      in   the  electrical transmission
industry.   Goldberg v. Sweet (1989),          U.S.     , 109
S.Ct. 582, 102 L.Ed.2d. 607.        As noted in the factual
discussion, BPA's entire integrated network is used to
schedule power.    The power transmitted across electrical
lines can not be accurately identified, and indeed, the path
taken is often indirect and bears no relation to contract
requisites. Instead, we have only the input point and the
eventual withdrawal of energy at a specified location.
Between the two, various factors indicate a likely, though
not actual, transmission path.
      Initially, we discuss our determination that PGE
possessed a "beneficial use" within the meaning of the
statute.    Contrary to appellant's argument, no physical
possession, exclusive use or control of the facilities is
necessary. Rather, "beneficial use" has long been defined as
a right recognized by law and enforceable by the courts.
                 The expression "beneficial use" or
           "beneficial ownership or interest" in
           property is quite frequent in the law,
           and means, in this connection, such a
           right to its enjoyment as exists where
           the legal title is in one person and the
           right to such beneficial use or interest
           is another, and where such right is
           recognized by law, and can be enforced by
           the courts, at the suit of such owner or
           of some one in his behalf.
Montana Catholic Missions v. iss sou la County (1906), 200 U.S.
118, 127-128, 26 S.Ct. 197, 200, 50 L.Ed. 398, 402; See also
Harrison v. City of Missoula (1965), 146 Mont. 420, 407 ~ . 2 d
703; Pacific Power & Light, Co.     To advance its commercial
activities, and thereby increase profits, PGE contracted for
firm transmission capacity over the BPA lines. This is an
enforceable contract interest in firm megawatts of power.
While PGE may not possess the lines, nonetheless, the power
flowing through the lines remain under PGE's ownership.
 ina ally, PGE pays for the use of the lines regardless of the
actual transmission flow. We find the reservation of firm
transmission demand grants PGE an exclusive right taxable
under S 15-24-1203, MCA.
      The physical wheeling of energy is not specific as to
which line it passes through, but rather the energy can
travel through various lines as long as the delivery point is
where the contract specifies. However, the facts reflect the
essential nature of the Hot Springs-Dworshak lines.       PGE
contracts to transmit bulk transfers of power, necessitating
the use of the higher voltage, lower impedance, 500 KV lines.
Without the Hot Springs lines, the transfer capability of
Colstrip power to the west would be substantially affected.
Indeed, BPA officials indicated that it could not fulfill.
contract obligations absent the Hot Springs lines. Clearly,
the Hot Springs lines are a vital portion of the RPA's main
grid.
      Appellant contends the DOR's assessment erroneously
assumed that only 500 KV facilities would be used in
providing services, ignoring the fact that a substantial
portion of the transmission facilities consist of tax exempt
230 KV lines.    PGE argues that in reality, the power is
scheduled over the entire BPA transmission system and
generally no line or path is associated with a particular
power schedule.
      The 500 KV lines from Hot Springs to the Idaho border
are in the direct transmission path of PGE's bulk energy
transfers to its Pearl substation. It is significant to note
that no 230 KV lines exist parallel to the 500 KV lines.
This fact strengthens the assumption that the 500 KV lines
are essential to PGE's energy transfers in this case, and are
properly taxed.
      It is not disputed that the DOR did not rely on actual
transmission flows.      Rather, the assessment was based
exclusively upon PGE's Garrison-west Agreement with the BPA
providing for firm transmission rights.   To eliminate any
influence of 230 KV lines in the assessment, the DOR
requested BPA to provide detailed information regarding the
actual cost of the installed Hot Springs lines located within
the State of Montana, and information regarding the total
capacity of the lines and date of installation.      From the
total cost, the DOR applied a straight line depreciation to
the amount, awarding 13 years depreciation based upon a 35
year life.   To the depreciated cost, the DOR multiplied a
fraction isolating PGE's interest in the lines, (denominator
represents the lines' capacity; and the numerator consists of
PGE1s firm transmission demand).       This value was then
integrated into PGE's centralized assessment, and thereby
subject to a 40% weighting figure which the DOR ascribes to
the cost indicator.    Puget Sound Power and ~ i g h t Co. v.
Department of   Revenue (Mont. 1988), 761 P.2d 336, 45 St.Rep.
1078.
      A tax      for the beneficial use of property, as
distinguished   from a tax on property itself, is commonplace.
Likewise, the   United States Supreme Court decisions support a
tax measured by the value of the tax-exempt property:
           In measuring such a use tax it seems
           neither irregular nor extravagant to
           resort to the value of the property used;
           indeed no more so than measuring a sales
           tax by    the value of the property
           sold. . . In our judgment it was not an
           impermissible     subterfuge    but     a
           permissible exercise of its taxing power
           for [the State] to compute its tax by the
           value of the property used.
United States v. City of Detroit (19581, 355 U.S. 466, 470,
78 S.Ct. 474, 476, 2 L.Ed.2d 424, 427; united States v. Boyd
(1964), 378 U.S. 39, 84 S.Ct. 1518, 12 L.Ed.2d   713.
      Reviewing       the   facts,   we   conclude    that     the   tax   was
imposed   on    the     privilege    of   using    the   property.         The
assessment     reflects     PGE's    contractual     reserve    arrangement
with the BPA, thereby ignoring actual flows and the lines'
west to east transmission capacity.
      Affirmed.




We concur:        L@"
