Montana District Court Finds that Public Service Commission Acted Arbitrarily and Unreasonably

On April 3, 2019, a Montana District Court Judge, Judge Manley, issued an order reversing the Montana Public Service Commission’s (“Montana Commission”) orders 7500c and 7500d that cut Public Utility Regulatory Policies Act (“PURPA”) standard avoided cost prices and contract lengths for qualifying facilities (“QFs”) offered by Montana utility NorthWestern Energy (“NorthWestern”). 

The Montana Commission’s orders were the culmination of an effort begun in 2016 to adjust NorthWestern Energy’s avoided cost prices. The Montana Commission docket at issue has become known as the QF-1 docket. After the QF-1 docket had commenced, the Montana Commission issued an additional notice indicating that it would also be considering contract lengths. The Montana Commission ultimately concluded that the avoided cost prices would be reduced by approximately half of what they had been set at previously and that contract lengths be would reduced from 25 to 15 years. The Montana Commission also included in its order a finding that NorthWestern’s cost recovery period for its own assets match the 15-year contract length available to QFs (this has become known as the “symmetry finding”).

The Montana Commission’s orders were appealed by both QFs jointly with environmental/solar advocacy groups and by NorthWestern. The QF and environmental/solar groups asserted a number of deficiencies with the Commission’s orders concerning the contract length and the price of energy and capacity under the methodology, and NorthWestern challenged the symmetry finding but supported the Montana Commission’s other findings.

The Court’s decision issued on April 3, 2019 in Montana’s Eighth Judicial District Court, for Cascade County, started out with a quote from Lily Tomlin: “No matter how cynical you get, it is impossible to keep up.” Throughout the opinion, Judge Manley detailed each instance where the Court found that the agency acted arbitrarily and unreasonably in its challenged decisions, concluding that one attorney’s statement that the agency had “gone rogue” was not hyperbole.

The Court found that the Montana Commission’s contract length decision violated Montana’s Administrative Procedure Act requirements by failing to provide notice that the issue would be addressed until after the intervention deadline had passed, and because as a result of that failure, there was not substantial evidence in the record to support the decision to cut contract lengths from 25 to 15 years. Additionally, the Montana Commission’s symmetry finding also violated the notice provisions.

Further, Judge Manley found that the Montana Commission’s decisions on avoided energy and capacity costs were arbitrary and unreasonable. First, the Montana Commission eliminated future regulatory costs of carbon dioxide emissions from the rate, contrary to the recommendation of the Montana Commission’s technical staff and without justification for this departure from its recent practice of including avoided carbon costs in QF rates. Second, the Montana Commission failed to account for the cost of new generating resources that NorthWestern plans to acquire in 2019. Third, the Montana Commission overlooked evidence that solar energy contributes to NorthWestern’s peak capacity needs in both summer and winter and undervalued that capacity contribution. The District Court ordered the Montana Commission to calculate and submit new rates within twenty days consistent with its decision.

The result of this decision is that contract lengths will return to 25 years and avoided cost prices will be recalculated.

Update: NorthWestern filed for a notice of appeal of the District Court’s order on April 11, 2019 and the Montana Commission filed a notice of cross-appeal on April 26, 2019. Additionally, there have been procedural motions filed in the District Court to stay the Montana Commission obligation to calculate new rates pending the appeal and to alter or amend the judgment.

Sanger Thompson represents Cypress Creek Renewables, one of the plaintiffs in the case.

These materials are intended to as informational and are not to be considered legal advice or legal opinion, nor do they create a lawyer-client relationship. Information included about previous case results does not assure a similar future result.