Mont. Envtl. Info. Ctr. v. Mont. Dep't of Pub. Serv. Reg.

• Docket Number: DA 22-0436
• Decision Date: 19 March 2024
• Citation: 545 P.3d 69
• Parties: MONTANA ENVIRONMENTAL INFORMATION CENTER, Plaintiff and Appellee, v. The MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Public Service Commission, and NorthWestern Corporation d/b/a NorthWestern Energy, Defendants and Appellants.
• Court: Montana Supreme Court

545 P.3d 69

2024 MT 56

MONTANA ENVIRONMENTAL INFORMATION CENTER, Plaintiff and Appellee,

v.The MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Public Service Commission, and NorthWestern Corporation d/b/a NorthWestern Energy, Defendants and Appellants.

DA 22-0436

Supreme Court of Montana.

Submitted on Briefs: March 22, 2023

Decided: March 19, 2024

APPEAL FROM: District Court of the Eighth Judicial District, In and For the County of Cascade, CauseNo. DDV 18-0640, Honorable James A. Manley, Presiding Judge

For Appellant Montana Public Service Commission: Lucas Hamilton, Montana Public Service Commission, Helena, Montana

For Appellant Northwestern Energy: Ben Alke, Crist, Krogh & Nord, PLLC, Bozeman, Montana Shannon Heim, Sarah Norcott, Northwestern Energy, Helena, Montana

For Appellee: Jenny Kay Harbine, Emily T. Qiu, Earthjustice, Bozeman, Montana

Justice James Jeremiah Sheadelivered the Opinion of the Court.

¶1 The Montana Department of Public Service Regulation, Montana Public Service Commission(Commission), and NorthWestern Corporation d/b/a NorthWestern Energy (NorthWestern) appeal two orders¹ from the Eighth Judicial District Court, Cascade County: (1) the August 1, 2019 Order reversing the Commission’s September 24, 2018 administrative order (Final Order) which waived NorthWestern’s legal obligations to purchase energy from Community Renewable Energy Project (CREP) resources in the years 2015 and 2016; and (2) the May 9, 2022 Order denying the Commission’s motion to dismiss because HB 576 did not moot the case and assessing a $2,519,800 penalty against NorthWestern.

¶2We restate and address the following issues:

Issue One: Whether the District Court correctly interpreted the sawings and retroactivity clauses of HB 576 when it concluded that HB 576 did not apply to NorthWestern Energy’s 2015 and 2016 applications for CREP waivers.

Issue Two: Whether the District Court correctly held that the Commission’s decision to waive NorthWestern’s2015 CREP obligation pursuant to § 69-3-2004(11)(a), MCA, was clearly erroneous under § 2-4-702(a)(v), MCA, and arbitrary under § 2-4-702(a)(vi), MCA.

Issue Three: Whether the District Court correctly held that the Commission's decision to waive NorthWestern’s2016 CREP obligation was based on an incorrect interpretation of § 69-3-2007(1), MCA.

Issue Four: Whether the District Court improperly assessed the penalty against NorthWestern.

¶3We affirm the District Court as to Issues One and Two.We vacate and remand for further proceedings consistent with this Opinion as to Issues Three and Four.

FACTUAL AND PROCEDURAL BACKGROUND

¶4 The Renewable Power Production and Rural Economic Development Act (the Act) requires public utilities to purchase a certain amount of electricity output from CREP resources.²Section 69-3-2004(3)(b), (4)(b), MCA.The Act defines a CREP resource as an eligible renewable resource that has no greater than 25 megawatts in total generating capacity.Section 69-3-2003(4), MCA.Ad- ditionally, a CREP resource must be either (1) locally owned³ or (2) owned by a public utility.Section 69-3-2003(4), MCA.The Act requires the Commission to impose an administrative penalty on a public utility that fails to meet its statutory obligation to acquire CREP resources each year.Section 69-3-2004(10), MCA.The Commission may grant a short-term waiver from the CREP purchase and penalty provisions if the utility demonstrates that it "has undertaken all reasonable steps" to comply, "but full compliance cannot be achieved … for other legitimate reasons that are outside the control of the public utility."Section 69-3-2004(11)(a), MCA.

¶5 For 2015, the Act required NorthWestern to procure 65.4 megawatts of energy from CREP resources.NorthWestern initiated a Request for Proposals (RFP) in an attempt to procure CREP resources.⁴NorthWestern limited the RFP to solicitation for CREP proposals, noting that it was not accepting proposals for non-CREP renewable resources, unbundled energy credits, or non-renewable resources.The RFP required all projects to be operational by the end of 2015.NorthWestern received 15 proposals in response to the RFP.It selected four finalists: Greycliff, New Colony, Tiger Butte, and Judith Gap II.Greycliff and New Colony offered bids for power-purchase agreements (PPA), while Tiger Butte and Judith Gap II offered bids for build-transfer projects.⁵

¶6 Both build-transfer project finalists had higher viability scores than the PPA finalists, and the Tiger Butte build-transfer project was the least-cost proposal.However, Northwestern rejected both build-transfer projects and signed PPAs with Greycliff and New Colony.Prior to signing these contracts, NorthWestern did not investigate whether those projects satisfied the statutory CREP requirement of being locally owned.After the PPAs were signed, NorthWestern filed a petition with the Commission for advanced approval of the contract with Greycliff pursuant to Admin.R. M. 38.5.8301(6).The Commission denied the petition, determining that NorthWestern failed' to provide "testimony and supporting work papers demonstrating the calculation of the utility’s avoided costs and associated cost caps."In the Matter of NorthWestern Energy’s Application for Approval of a Purchase Power Agreement with Greycliff Wind Prime, LLC, OrderNo. 7395d, ¶ 30, Dkt. D2015.2.18(Apr. 24, 2015)(citingAdmin. R. M. 38.5.8310(6)(h)).

¶7 At the same time as NorthWestern’s pre-approval application, Greycliff requested the Commission to issue a declaratory ruling that it satisfied the local ownership requirement and qualified as a CREP.The Commission declined to issue the ruling because it was skeptical of Greycliff's ownership structure and reliance on out-of-state financing.In Re Greycliff Declaratory Ruling,Dkt. D2015.3.23 Mont. Admin. Reg. 11-6/11/15 (May 18, 2015).After the Commission’s decisions, Greycliff and New Colony, which had a similar ownership structure to Greycliff, terminated their PPAs.NorthWestern did not pursue negotiations with other finalists from the RFP, did not meet its obligation to procure CREP resources in 2015, and petitioned the Commission for waiver from compliance with the 2015 CREP obligation pursuant to § 69-3-2004(11)(a), MCA.

¶8 In July 2015, NorthWestern issued another RFP relative to its 2016 CREP obligation.The RFP again was limited to solicitation for CREP proposals and required that projects be operational by the end of the 2016 compliance year.Eleven proposals were submitted in response to the RFP, but NorthWestern rejected all proposals based on its claim that none of the projects were "cost-competitive."NorthWestern did not comply with the CREP purchase obligation for 2016 and petitioned the Commission for another waiver.

¶9 In October 2017, the dockets for the 2015 and 2016 waivers were consolidated.Throughout the administrative proceedings, NorthWestern argued that it took all reasonable steps to procure energy from CREP resources, but factors beyond its control prevented compliance.

¶10 Following an evidentiary hearing on April 4, 2018, Commission staff submitted a memorandum recommending the Commission deny NorthWestern’s request for a CREP-compliance waiver for 2015 but grant its request for a CREP-compliance waiver for 2016.The staff concluded that North-Western failed to take reasonable steps to procure CREP resources in 2015 because it (1) unreasonably disqualified projects that could not become operational by the end of the compliance year and, (2) unreasonably rejected the Tiger-Butte build-transfer proposal.The staff also determined that NorthWestern was not prevented from compliance by factors beyond its control because NorthWestern "had the control to conduct marginal due diligence to ensure that a finding of compliance was plausible."For the 2016 compliance year, staff recommended that the Commission grant a waiver based on NorthWestern’s contention that none of the projects were cost-effective.

¶11 During a work session on September 11, 2018, the Commission granted waivers to NorthWestern for its CREP obligations in 2015 and 2016 by a 3-2 vote.Commissioners on both sides of the vote expressed frustration with the "nearly impossible" requirements of the CREP provisions.Commissioners in favor of granting NorthWestern’s waiver asserted that it was unfair to expect NorthWestern’s compliance with an "unreasonable law" and stated that they unshed to "send a message" to the Montana Legislature.Commissioners who dissented noted they were required to "apply the law as written," and asserted NorthWestern had not taken reasonable steps to comply because there were other viable alternatives from the 2015 RFP.In particular, Commissioner Koopman noted:

That the CREP law is a short-sighted and unreasonable burden on public utilities like NorthWestern is a given.Its amendment or outright repeal would be favored by this commissioner.But as I tried, unsuccessfully, to argue, that does not empower the Commission to simply flout the law, when the public record virtually screams "non-compliance."

¶12 Granting NorthWestern’s petition for waiver, the Commission’s Final Order concluded that "NorthWestern took all reasonable steps to procure CREP resources for 2015 and 2016, yet documented factors beyond its control prevented NorthWestern from achieving full compliance."In support of its conclusion, the Commission’s factual findings identified only three steps taken by NorthWestern to achieve compliance in 2015: (1) NorthWestern issued an RFP to locate potential CREPs for its 2015 obligation; (2) NorthWestern hired a consultant, who narrowed the proposals down to four finalists; and (3) NorthWestern signed PPAs with Greycliff and New Colony.The Commission also found that NorthWestern was prevented from complying based on a factor outside its control because the PPAs’ ownership structure did not meet the local-ownership criterion for CREP resources.With respect to 2016,...