MTSUN, LLC v. Mont. Dep't of Pub. Serv. Regulation

• Decision Date: 22 September 2020
• Docket Number: DA 19-0363
• Citation: 2020 MT 238,401 Mont. 324,472 P.3d 1154
• Court: Montana Supreme Court
• Parties: MTSUN, LLC, Applicant, Petitioner, and Appellee, v. The MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Montana Public Service Commission, Respondent and Cross-Appellant, and Northwestern Corporation, d/b/a Northwestern Energy, Intervenor, Respondent, and Appellant, and The Montana Consumer Counsel, Intervenor.

401 Mont. 324

472 P.3d 1154

2020 MT 238

MTSUN, LLC, Applicant, Petitioner, and Appellee,

v. The MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Montana Public Service Commission, Respondent and Cross-Appellant,andNorthwestern Corporation, d/b/a Northwestern Energy, Intervenor, Respondent, and Appellant,andThe Montana Consumer Counsel, Intervenor.

DA 19-0363

Supreme Court of Montana.

Submitted on Briefs: January 15, 2020

Decided: September 22, 2020

For Appellant NorthWestern Energy: Ann B. Hill, NorthWestern Energy, Helena, Montana

For Cross-Appellant Montana Public Service Commission: Zachary Taylor Rogala, Luke Casey, Justin Wade Kraske, Montana, Public Service Commission, Helena, Montana

For Appellee MTSUN, LLC: Michael J. Uda, Christine McMurry, Uda Law Firm, PC, Helena, Montana

For Intervenor Montana Consumer Counsel: Jason T. Brown, Montana Consumer Counsel, Helena, Montana

Chief Justice Mike McGrath delivered the Opinion of the Court.

¶1 The Montana Public Service Commission ("PSC") and NorthWestern Energy ("NorthWestern") appeal an order of the Eighth Judicial District Court, Cascade County, reversing and remanding the PSC's order setting terms and conditions of MTSUN, LLC's ("MTSUN") proposed 80 megawatt ("MW") solar project near Billings, Montana.

¶2 We restate the following issues on appeal as dispositive and do not address other issues raised:

Issue One: Whether the District Court erred in determining that the PSC arbitrarily and unlawfully found that MTSUN did not establish a legally-enforceable obligation under PURPA and therefore was not entitled to agreed-upon contract terms.

Issue Two: Whether the PSC exceeded its authority in upending the parties’ agreed-upon contract terms established by MTSUN's legally-enforceable obligation.

Issue Three: Whether the District Court erred when it concluded that the PSC arbitrarily and unreasonably calculated MTSUN's capacity contribution in determining avoided costs.

¶3 We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶4 Before addressing the merits of the case, we contextualize the issues presented by providing necessary background information on the governing laws, practices of the PSC, and the relevant factual and procedural history of the present action. Regarding the background of applicable federal and state law, as well as the historical practices of the PSC, we incorporate by reference this Court's discussion in Vote Solar v. Mont. Dept. of Pub. Serv. Regulation , 2020 MT 213, ¶¶ 4-17, 401 Mont. 85, 473 P.3d 963.

PURPA Background

¶5 In addition to the Public Utility Regulatory Policies Act ("PURPA") background provided in Vote Solar , ¶¶ 3-17, it is necessary to discuss another component of PURPA that was not at issue in Vote Solar but is in this case. PURPA and Montana's implementation of PURPA requires that for larger qualifying facilities ("QFs")—those between three and 80 MWs—avoided-cost purchase prices be established between the QF and the purchasing public utility through a negotiated contract, on an "as available" basis, or pursuant to a "legally-enforceable obligation" ("LEO"), whereas smaller QFs—less than 3 MWs—receive a standard avoided-cost rate that is set by the PSC itself every two years. 16 U.S.C. § 824a-3(a), (m)(6) ; § 69-3-601(3)(c), MCA ; 18 C.F.R. § 292.304(c), (d) ; Admin. R. M. 38.5.1902(5), 38.5.1909. This dispute is centered on PURPA's legally-enforceable obligation component.

PURPA's Legally-Enforceable Obligation

¶6 Under its PURPA authority, see 16 U.S.C. § 824a-3(a), the Federal Energy Regulatory Commission ("FERC") has established that a QF can sell power to a utility via a LEO, rather than under a contract.

18 C.F.R. § 292.304(d)(2) ; see Midwest Renewable Energy Projects, LLC , 116 FERC ¶ 61017, 61073 (July 7, 2006) (holding "[t]hat Congress used the term ‘contract or obligation’ in drafting section 210(m)(6) [ 16 U.S.C. § 824a-3(m)(6) ] suggests that Congress intended that the Commission continue to protect both contracts and obligations that had not yet ripened into contracts but were ‘in effect or pending approval’ "). A LEO is a "non-contractual, but binding" commitment from a QF to sell power to a utility. Cedar Creek Wind, LLC , 137 FERC ¶ 61006, 61023 (Oct. 4, 2011). The phrase is used to prevent an electric utility from avoiding its PURPA obligations by refusing to sign a contract, or "from delaying the signing of a contract, so that a later and lower avoided cost is applicable." Cedar Creek Wind , 137 FERC at 61024. Accordingly, the establishment of a LEO turns on "the QF's commitment, and not the utility's actions," and when a QF commits itself to sell to an electric utility, it "also commits the electric utility to buy from the QF."¹ FLS Energy, Inc. , 157 FERC ¶ 61211, 61730-31 (Dec. 15, 2016) (emphasis in original). Importantly, the date that a LEO is formed is the date that the QF has the right to have its avoided-cost rate determined. 18 C.F.R. § 292.304(d)(2)(ii).

¶7 The primary legal issue surrounding the LEO provision of PURPA is whether and when a QF has committed itself to sell to an electric utility. Relevant here, FERC provides that a QF commits itself to sell electricity to a utility through either a signed contract or when the QF petitions a state utility commission because "the electric utility refuses to sign a contract" or "delay[s] the signing of a contract." Cedar Creek Wind, 137 FERC at 61024; JD Wind 1, LLC , 129 FERC ¶ 61148, 61633 (Nov. 19, 2009) ; New PURPA Section 210(m) Regulations Applicable to Small Power Production and Cogeneration Facilities, 71 Fed. Reg. 64342, 64345, 64368 (Nov. 1, 2006) (hereinafter New PURPA Section 210(m) Regulations), aff'd sub nom. , Am. Forest and Paper Ass'n v. FERC , 550 F.3d 1179, 384 U.S. App. D.C. 73 (D.C. Cir. 2008).²

Upon petitioning, "a non-contractual, but still legally-enforceable obligation will be created pursuant to the state's implementation of PURPA." JD Wind 1 , 129 FERC at 61633.

The Proposed Energy Project

¶8 The proposed energy project at issue in this case is MTSUN's 80 MW single-axis tracking solar energy project near Billings, Montana. Since the proposed project is 80 MWs, it qualifies for development incentives under PURPA, 16 U.S.C. § 824a-3, and Montana's mini-PURPA, § 69-3-601(3), MCA. After engaging with NorthWestern to negotiate a power purchase agreement ("PPA") and failing to agree to an avoided-capacity cost, MTSUN petitioned the PSC on December 23, 2016, to set the terms and conditions for the proposed project in accordance with the requirements of PURPA, 16 U.S.C. § 824a-3, and Montana's mini-PURPA, § 69-3-603, MCA.

MTSUN and NorthWestern's Negotiations

¶9 Prior to filing its petition with the PSC, MTSUN and NorthWestern were engaged in negotiations to establish the avoided cost rate and contract terms of the proposed project for nearly a year and a half. On September 24, 2015, MTSUN emailed Bleau LaFave and Frank Bennett of NorthWestern indicating its desire to secure avoided-cost pricing from NorthWestern for its potential qualifying facility development in Montana. After a few preliminary emails between the parties, NorthWestern failed to respond to MTSUN for nearly six months, despite MTSUN's continued attempts to discuss the project and avoided-cost negotiations. On March 11, 2016, MTSUN filed an informal complaint with the PSC against NorthWestern arguing that NorthWestern's refusal to respond was creating a barrier to market entrance of MTSUN's QF in contradiction of PURPA's intent and requirements of encouraging QF development, 16 U.S.C. § 824a-3(a).

¶10 NorthWestern then responded to MTSUN's previous emails on April 1, 2016, requesting additional data. MTSUN replied on April 7, 2016, with the additional data and requested that NorthWestern provide it with forecast avoided-cost information. NorthWestern responded on April 29, 2016, requesting more information regarding the project, including MTSUN's fully executed Large Generator Interconnection Agreement ("LGIA"). MTSUN responded and informed NorthWestern that an executed LGIA was not a prerequisite to NorthWestern's duty to calculate a forecasted avoided cost for the MTSUN project. On May 2, 2016, MTSUN again contacted the PSC to obtain an order or ruling on whether a fully executed LGIA was a legal prerequisite to a QF obtaining forecast avoided-cost pricing from a Montana utility. The PSC concluded that there is no legal requirement that a QF provide a utility with a fully executed LGIA prior to receiving forecasted avoided-cost pricing.

¶11 On May 13, 2016, NorthWestern sent an email to MTSUN with its first estimate of its avoided costs for the MTSUN project. MTSUN did not agree that the calculation and the information supporting it was compliant with PURPA or its federal or state implementing regulations and responded to NorthWestern's estimates seeking more information regarding the avoided-cost calculations. On May 19, 2016, NorthWestern then provided MTSUN with a comprehensive estimate of the avoided costs arriving at $46.64/megawatt hour (MWh). MTSUN was requesting $53.26/MWh in avoided costs.

¶12 On May 31, 2016, MTSUN formally requested a PPA from NorthWestern. On June 17, 2016, MTSUN and NorthWestern held a conference call discussing further avoided-cost forecasting and NorthWestern's methodology. During this conference call, NorthWestern indicated that it was awaiting the outcome of another PSC proceeding, In re Greycliff Wind Prime, LLC , Docket No. D2015.8.64, Order No. 7436d, and that until the PSC ruled in that case, its avoided-cost method could not be altered, delaying avoided-cost negotiations with MTSUN.

¶13 On June 20, 2016, NorthWestern provided MTSUN with its first draft of the proposed PPA, to which MTSUN responded four days later with its proposed revisions. On July 11, 2016, NorthWestern provided MTSUN with a completely new avoided-cost rate of $35.48/MWh, more than $11/MWh lower than its earlier offer of $46.64/MWh. MTSUN disagreed and countered with a...