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!!Adopt EQC Operating Rules and Procedures.Review, revise, and adopt Council and Subcommittee Work Plans.I. CALL TO ORDER AND ROLL CALLThe meeting was called to order at 1:05 p.m. by CHAIRMAN McNUTT, and the secretary notedthe roll (Attachment 3).II. ADMINISTRATIVE MATTERSREP. HEDGES moved to approve the minutes from the EQC meeting on June 16-17, 2003.REP. BIXBY seconded the motion. The motion carried unanimously by voice vote. Todd Evertsexplained the publications awards received for the Electricity Law Handbook and theLegislator’s Handbook Guide. He also presented the EQC Operating Rules and Procedures(Exhibit 1). REP. HEDGES moved to approve Exhibit 1 and REP. BARRETT seconded themotion. The motion carried unanimously by voice vote.III. PUBLIC COMMENT: NoneIV. TOTAL MAXIMUM DAILY LOADS (TMDLs)Art Compton, Department of Environmental Quality (DEQ), presented a PowerPointpresentation on the History of Total Maximum Daily Loads (TMDLs) in Montana, the TMDLprogress to date, and a review of the TMDL schedule (Exhibit 2).John Youngberg, Montana Farm Bureau, explained that non-point source problems aredifficult to deal with, and that’s why the program is voluntary. He said that the TMDL is a targetto shoot for, but is not a water cleanup requirement. MR. O’HAIR wondered since the publicparticipation part of the TMDL is so slow, if it would be better to include that in theimplementation part of the program. SEN. McGEE asked what would happen if DEQ missesthe deadline. Mr. Compton stated that they will do their best not to let that happen, but if itdoes, the plaintiffs would ask that the Environmental Protection Agency (EPA) administration beheld in contempt. SEN. McGEE wondered how many lawsuits over TMDLs have been filed.Mr. Compton explained that the EPA is the defendant, not DEQ; there has been no actionagainst the Department. He said that a coalition of environmental groups filed the suits and thefederal Department of Justice (DOJ) defended the case, with support from DEQ. He added thatDEQ only provides 1/4 FTE per year; the federal defense is covering the majority. REP. CLARKasked if a person will be able to get a development permit when a stream section is on privateland but is polluted. Mr. Youngberg said that they could get a permit for a point source if theTMDL is done and the non-point source has not met its load. He added that the localwatershed group deals with the implementation portion. MR. STRAUSE wondered if the EPAhas won the lawsuits in Montana. Mr. Compton stated that the one subject the plaintiffs lost hasbeen resurrected. MR. STRAUSE observed that if it weren’t for the lawsuits, the TMDLs wouldnever get done.Mr. Youngberg said that the TMDL Advisory Group made the following suggestions:! Continue to do TMDLs on watershed basis! Don’t get caught up in perfection paralysis! Move through the re-assessment of streams-2-

! Utilize opportunities on work already done! Prioritize! Promote use of templates! Don’t hold up watershed due to one contentious section of stream! Submit TMDLs in draft form this year! Look at what other states are doing (such as Idaho)! Utilize components of federal land use areas! Keep pressure on EPA to follow new guidance! Deal with pollutants, not pollutionMr. Youngberg said that to the sawmills, it doesn’t matter who is not getting it done. MR.O’HAIR added that the timber industry doesn’t have until 2007 to work out the issue; sales aredeclining due to lawsuits, not just the market. SEN. TOOLE said that he would like to see theTMDLs move forward; the Canadian timber supply and trade policy is another issue.V. ENERGY POLICY SUBCOMMITTEE REPORTSEN. McGEE, Subcommittee Chairman, went over the draft work plan (Exhibit 3) andexplained that the end result will be to provide informational papers to the full Council. Headded that they will be working with the Energy and Telecommunications Interim Committee toaccomplish this.VI. AGENCY OVERSIGHT SUBCOMMITTEE REPORTREP. HARRIS, Subcommittee Chairman, gave a brief synopsis of the meeting held in themorning. He said that they had a brief hearing on meth labs, a DEQ Enforcement andCompliance activity report, discussed the MEPA permit application for burning tires (Holcim,Inc.), and the agency oversight over the bill on baled tires. MR. EBZERY asked if the maindilemma with MEPA is the statutory provision of the time frame. REP. HARRIS stated that is aproblem raised by Holcim, as well as the issue of who will pay for the EIS. MS. PORTER addedthat other states don’t require this extensive permitting or the Environmental Impact Statement(EIS). REP. BARRETT observed that public comment under MEPA isn’t weighted.VII. BIODIESEL PANEL DISCUSSION1. The Basics of Biodiesel: Howard Haines, Engineering Specialist, DEQ, presented hisremarks in the form of a PowerPoint presentation (Exhibit 4).2. National Research and Development of Biodiesel: Dr. Shaine Tyson, NationalBioenergy Center, National Renewable Energy Laboratory, Department of Energy, wentthrough her remarks in a PowerPoint presentation to explain biodiesel research anddevelopment on a national scale (Exhibit 5).3. National Policy Perspectives on Biodiesel: Charles Hatcher, Regulatory Director,National Biodiesel Board, also went through a PowerPoint presentation (Exhibit 6).4. Montana Agriculture and Biodiesel: Steve Simonson, Sanders County DevelopmentSpecialist, Peaks and Prairies Oilseed Growers Cooperative, said that the challenges withbiodiesel are coproduct development and sustainable production levels. He further explained-3-

the outline he presented to the Council (Exhibit 7), explaining alternative fuels in Montana,benefits to agricultural producers, the business opportunities, and the environmental aspects ofbiodiesel.5. State Biodiesel Pilot Project: Dave Galt, Director of Transportation, Department ofTransportation (DOT), stated that they offered to participate in the pilot project to look into thepossibility of carbon emissions credit trading. He said that they have since found that it is not apossibility. Susan Sillick, Research Bureau Chief, DOT, went through her PowerPointpresentation to further explain the project (Exhibit 8). She explained the process including thetechnical panel, Phase 1 (Literature Review) and Phase 2 (Field Evaluation).REP. HARRIS wondered how big a feed oil plant needs to be. Mr. Simonson answered that itneeds to produce 4 million gallons annually, with about 173,000 acres of total production. Headded that Montana farmers can produce that, but there is also an advantage to working withNorth Dakota and South Dakota, which is already taking place. REP. CLARK wondered if thereis an incentive to get lands from CRP into oilseed production, and Mr. Simonson responded thatthere is. REP. CLARK inquired what funding it will take to get the plant going. Mr. Simonsonexplained that there will be the cost of the DOT study, as well as the loss of potential revenuewith the tax displacement incentive.SEN. McGEE asked about biodiesel use in aircraft. Dr. Tyson told him of a Baylor UniversityFAA-regulated air test, and that they certified one type of aircraft for biodiesel. She added thatthe Dakotas certified another aircraft for B20 (20% biodiesel) use. Mr. Hatcher said that themajor problem is the cold temperatures, that are not at all conducive to biodiesel. SEN. McGEEinquired about the use of biodiesel by the City of Phoenix. Mr. Hatcher stated that Arizonapassed a law requiring school busses to use biodiesel, and Dr. Tyson added that all eightschool districts in Phoenix are using B20. SEN. McGEE asked how many plants are currentlyproducing biodiesel, and Dr. Tyson told him there are about twelve. MR. EBZERY wondered ifany other states have mandated a percentage of biodiesel use. Mr. Hatcher responded thatKansas and Washington have passed state-agency mandates, while Montana, North Dakota,South Dakota, and Illinois have all had hearings to look into mandates as well. MR. EBZERYasked if biodiesel can succeed without mandates. Mr. Hatcher responded that it absolutely can;production has doubled in the last four years, and a mandate to use it might leave a bad taste.Mr. Haines interjected that biodiesel as B100 is also currently used in underground mines.REP. HEDGES wondered about the biodiesel being used to heat homes and any potential coldflow problems. Mr. Haines said that B100 doesn’t burn readily without applying pressure, andthat the BTU content is less than heating oil. He said that the additives are inserted at thepipeline distributor location. Dr. Tyson stated that in boiler tests, B20 performs the best. Shesaid a grant was provided to test a few homes and four elementary schools with B20 as theheating source, and there have been no problems. SEN. TOOLE asked if the cost analysisincludes the protein meal coproducts or just the oil coproducts. Dr. Tyson affirmed that itassumes the sale of animal protein products. SEN. McGEE wondered about incentives to growcanola instead of wheat in Montana, and if crops can be mixed to make biodiesel. Dr. Tysonexplained that the incentive is the profit market for the new crop (with secured contracts), andthat most vegetable oils can be mixed together. She said that an oilseed plant could be flexible,or dedicated to one material only. Mr. Simonson suggested diversification, with not greater than25% going into oilseed. He added that the wheat crop is better after an oilseed rotation.-4-

Recess at 5:30 p.m. until October 9, 2003.Reconvene at 8:07 a.m. October 9, 2003.VIII. HOUSE JOINT RESOLUTION (HJR) 41. Bibliography of Water Information: Krista Lee Evans referred to various articles andsummaries dealing with water that had been sent to the Council for their reference. Exhibit 9includes a cover letter from the Legislative Library along with a list of the holdings. It alsoincludes the water policy resources from the Montana State Library. Exhibit 10 includes thememo from Ms. Evans explaining her request to each of the executive branch agencies forwhich EQC has oversight, including DEQ, DNRC, and the Department of Fish, Wildlife andParks (FWP). The exhibit includes the agencies’ responses of their water information available.A water storage report submitted to the Legislature by Governor Judy Martz is included asExhibit 11.2. Discussion of Public Involvement in the HJR 4 Process: Ms. Evans distributed a letterfrom Rep. Michael Lange, the sponsor of HJR 4, with his recommendations to the Council(Exhibit 12). She also explained a few options for the Council including: holding publichearings, internet feedback forms, or postcards soliciting feedback. REP. CLARK observed thatitem #3 on Page 3 (Identify primary water policy issues facing the state) of the EQC Work Plan(Exhibit 13) is important and needs public involvement.3. The basics of Montana Water Law: Judge Bruce Loble, Chief Water Judge, presented adocument to the Council covering the basics of water law (Exhibit 14). He said that there arefour primary water principles discussed in the document:! First in time is first in right.! Water has to be used for a beneficial purpose.! Use it or lose it.! You can’t change a water right if it’s going to adversely affect another user.REP. CLARK wondered if a transferred water right has been 50% of the original use, if a personcan continue with the earlier use, or has to take it at 50%. Judge Loble stated that the waterright may have been reduced to a specific quantity. He added that the principles are not selfenforcing; as there becomes a greater demand on the resource, there will be greater need forlegislation. REP. PETERSON asked about ponds, and Judge Loble replied that ponds are anon-consumptive use of water. REP. PETERSON wondered if current law protects water rightsusers regarding ponds, and Judge Loble stated that it probably does not. REP. CLARK askedabout the kinds of water sources for establishing water rights. Judge Loble said that all sourcesare subject to appropriation. REP. CLARK inquired how the rights are affected if the quality ofwater has changed so that the quantity must be adjusted. Judge Loble stated that the watercourt’s jurisdiction is water rights before July 1, 1973. REP. HEDGES asked if a subdivisiondoesn’t have to pay a ditch assessment, if they lose the water rights. Judge Loble explainedthat the Legislature changed that for small landowners.SEN. TOOLE inquired how a well affects surface rights. Judge Loble stated that the shallowground water interacts with the surface water because a well creates a “cone of depression”that acts like a water vacuum. He said that it most likely has an effect, especially if the well islocated near the water source, but that it is hard to prove. SEN. TOOLE asked if the water rightholders would have a case in court. Judge Loble said that they would, if a demonstratable-5-

effect of the well could be proven, but that it is a very expensive process. SEN. McGEE andJudge Loble then discussed flood water rights and it was explained that all water is subject toan appropriation, and that the state technically owns the flood water. When a stream floods atown, however, there are no water rights because there is no beneficial use being applied to it.REP. STORY and Judge Loble then discussed the Federal Reserved Water Rights CompactCommission. REP. CLARK wondered what would happen if a new consideration develops,such as a new species that needs a downstream flow. Judge Loble replied that it would behandled in accordance to the Federal Clean Water Act and the Endangered Species Act. Headded that federal laws can trump state laws if necessary. SEN. ROUSH and Judge Loblediscussed flood water rights, and the need to obtain the water rights before building a diversionfor the water.4. Panel Discussion on Primary Water Policy IssuesJack Stults, Division Administrator, Water Resources Division, DNRC, elaborated on hiswritten remarks, included as Exhibit 15. He also distributed two maps displaying theadjudication status and controlled ground water areas (Exhibit 16). SEN. WHEAT asked whyit is taking so long to adjudicate all of the water rights. Mr. Stults replied that the Departmentdoes not have enough resources, and they continue to be cut. He said that the 10 people nowworking on it will take about 25 years to complete the project. Judge Loble added that the courtis operating efficiently, and that the process has been slowed purposefully. He stated that it is ahuge project with many factors involved.John Bloomquist, Helena Attorney, past water master, and previous member of the WaterAdjudication Advisory Council, delineated the following points:! No fundamental structural changes are needed now.! HJR 4 is too huge to cover; have to focus efforts within a few areas.! If the Legislature wants to advance Montana, they have to get a handle on waterrights, distribution, and changes in use of water.! New appropriations for changes of use are critical; it takes too long to get a decisionon permitting from DNRC, which is not their fault.! Don’t spend time on adding new water storage, but enhance existing storage facilities.! Adjudication issue is fundamental; need to get decrees out, reviewed, andadjudicated.! Remarkable success has been noted with the compacting process, but they are nowat a crossroads.SEN. WHEAT asked if an inventory has been done on existing dams, and Mr. Bloomquistresponded that it has. Mr. Stults added that the inventory has been done, and they know thecondition and estimates for rehabilitation, as well as the potential for expanding the dams. Hesaid that they have upgraded and continue to upgrade the dams. SEN. WHEAT wondered if theCouncil should focus on dam upgrades, and Mr. Stults suggested that the DNRC could look atalternative uses and additional capacity.Holly Franz, Helena Water Rights Attorney, stated that the stability of water rights is a keyissue of property ownership. She added that dam studies have already been done, so theemphasis should be on working with existing storage facilities. She distributed a copy of theMontana Business Quarterly addressing water rights (Exhibit 17) and “The Beginner’s Guideto Augmentation Plans for Wells”, Exhibit 18. Ms. Franz stated that there is a need forpredictability, and to enforce priorities; that is why it is so important to finish the adjudicationprocess. She explained that there are enforcement issues that need to be determined, because-6-

DNRC is not an enforcing agency. She stated that there is a lack of qualified watercommissioners (ditch riders) in Montana that is also causing a problem. SEN. WHEAT asked ifthe water commissioners are under the Water Court or the DNRC. Ms. Franz stated that theyare employees of the District Courts, but they work with the DNRC for training.Stan Bradshaw, Trout Unlimited, explained that the adjudication affects everybody, and thatthere needs to be a more efficient system of administration. He stated that the policy issue thatHJR 4 is trying to address is water shortage. Mr. Bradshaw added that the Drought ResponseAct helps, but is only a start. The two main issues he delineated are supply (ground water andsurface water) and adjudication. He said that the measure of a water right is how it washistorically put to use. The State has spent 37.5 million to date on water rights adjudication,and more money is needed to finish the project. He stressed the importance of obtaining anaccurate adjudication.REP. HARRIS wondered about surface water rights regarding the diversion of water from theclouds. Ms. Franz said that atmospheric water is appropriable, and Mr. Stults added that thestatute agrees and allows for weather modification, but there is a high cost for the researchrequired to obtain a permit. He said that the permit is not a water right permit, but a weathermodification permit. Rich Moy, DNRC, said that a permit as well as a license are required.SEN. McGEE and Mr. Stults discussed the unified system regarding aquifers and surface water.Mr. Stults stated that the DNRC recognizes that some are not unified; legally they are mostlyunified, but scientifically they are isolated water sources. They also discussed coal bedmethane and the implications of hitting water while drilling. REP. CLARK inquired how arequest for a change in nonadjudicated water rights is handled. Judge Loble gave an exampleof a person who built a reservoir, but then had the water right abandoned. REP. CLARKwondered about placing a moratorium on changes until the adjudication could be accomplished,but Mr. Bradshaw explained that changes are the only way to move things along and enhanceaccuracy.Judge Bruce Loble quickly expanded upon last page of Exhibit 14 regarding the adjudication ofpre-July 1973 “existing” water rights. REP. BARRETT asked where the six water masters arelocated, and Judge Loble responded that they are in Boze

donald hedges ken toole jim peterson michael wheat-1-final minutes october 8-9, 2003 rm. 102, state capitol council members present mr. thomas ebzery mr. howard strause sen. daniel mcgee sen. walter mcnutt sen. glenn roush sen. ken toole rep. debby barrett rep. norma bixby rep. paul clark rep. christopher harris rep. donald hedges rep. jim peterson

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