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The U.S. Supreme Court issued a ruling on Wednesday in favor of PPL Montana in a dispute with the State of Montana over who owns the riverbeds underneath dams on three Montana rivers.

The Montana Supreme Court had earlier ruled that PPL must pay the state $40 million in back rent for using the rivers to operate hydroelectric dams.

In its decision, the U.S. Supreme Court reversed the Montana justices, stating the the Montana Supreme Court was wrong to conclude that the state owns the riverbeds.

Here are relevant excerpt from the U.S. Supreme Court ruling; click here to read the full decision (PDF).

As the litigation history of this case shows, Montana filed its claim for riverbed rent over a century after the first of the dams was built upon the riverbeds. Montana had not sought compensation before then, despite its full awareness of PPL's hydroelectric projects and despite the State's own participation in the projects' federal licensing process...Still, the reliance by PPL and its predecessors in title upon the State's long failure to assert title is some evidence to support the conclusion that the river segments were non-navigable for purposes of the equal-footing doctrine.

The Montana Supreme Court's ruling that Montana owns and may charge for use of riverbeds across the State was based upon an infirm legal understanding of this Court's rules of navigability for title under the equal footing doctrine. As the Court said in Brewer-Elliott, "It is not for a State by courts or legislature, in dealing with the general subject of beds or streams, to adopt a retroactive rule for determining navigability which . . . would enlarge what actually passed to the State, at the time of her admission, under the constitutional rule of equality here invoked."

The judgment of the Montana Supreme Court is reversed, and the case is remanded for further proceedingsnot inconsistent with this opinion.

We will update you on this developing story as we learn more.

(December 7, 2011; Marnee Banks reporting) A United States Supreme Court hearing is underway in a case relating to Montana's major rivers.

PPL Montana owns and operates 11 hydroelectric dams in the state, and 10 of them sit on the largest rivers in Montana.

According to a District Court decision and a Montana Supreme Court decision, PPL must pay the state $40 million in back rent for using the rivers to operate those facilities.

David Hoffman, PPL Montana director of external affairs, says that PPL has appealed the ruling to the U.S. Supreme Court arguing that the Clark Fork, Missouri and Madison Rivers were not navigable at the time of statehood and therefore should not be managed by the state.

"At the time Lewis and Clark attempted to navigate the Missouri River that is where their navigation ended at least at the point of the Great Falls because they spent nearly 30 days carrying boats around those falls," Hoffman says.

However, the state and Montana Attorney General Steve Bullock will argue the rivers were navigable and the state has every right to the rivers.

Bullock issued this statement going into the Supreme Court hearing: "What is at stake here is more than just damages and back rent, but whether or not Montanans own the land beneath our rivers, including the Great Falls of the mighty Missouri - a symbol of Montana since territorial times. It's a case of national importance: Twenty-five states have joined us in asking the Supreme Court to uphold the decision of Montana's high court, because this case could impact every state's control of the beds and banks of their rivers."

Governor Brian Schweitzer (D-MT) says this case calls into question the state's management of not just the place where the dams sit but the entire length of the rivers.

"If in fact they win this then nearly 3,000 miles of Montana rivers will become the possession of the federal government, not the State of Montana. This would be one of largest land grabs in the history of the west," Schweitzer says.

Hoffman says the state saw an opportunity to add revenue to the state coffers and over time the case has morphed into a discussion over who owns the waterways.

"It was the largest money grab, or one of the largest money grabs, in the history of the state," Hoffman says.

PPL argues if it has to pay rent on the use of rivers, so will other water users including farmers and irrigators, and that could be detrimental to smaller users.

"If we lose this case, it's really just the tip of the iceberg and the amount of money that could be collected from other users on these stream beds is immense," Hoffman says.

Hoffman says if PPL is forced to pay the $40 million those costs will eventually be passed on to Montana rate payers who use the electricity generated by PPL's facilities.

The Governor says if PPL pays the $40 million the State Land Board will decide how to spend the money. However, MT State Senator Jim Shockley (R - Victor) is on the record saying the legislature has the right to appropriate that money.

MT State Senator Bradley Hamlett (D-Cascade) sponsored Senate Bill 35 during the 2011 legislative session which further clarified the state's role in managing the rivers. The bill passed with significant majorities and Governor Schweitzer signed the bill into law in May.

SB 35 allows the Land Board to adopt rules for leasing the beds of navigable rivers.