Vote Solar, Mont. Envtl. Info. Ctr., & Cypress Creek Renewables, LLC v. Mont. Dep't of Pub. Serv. Regulation

• Decision Date: 24 August 2020
• Docket Number: DA 19-0223
• Citation: 401 Mont. 85,473 P.3d 963,2020 MT 213 A
• Parties: VOTE SOLAR, Montana Environmental Information Center, and Cypress Creek Renewables, LLC, Plaintiffs and Appellees, and WINData, LLC, Plaintiff-Intervenor and Appellee, v. MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Montana Public Service Commission, Defendant and Cross-Appellant, NorthWestern Corporation, d/b/a NorthWestern Energy, Defendant and Appellant, and Montana Consumer Counsel, Defendant-Intervenor.
• Court: Montana Supreme Court

401 Mont. 85

473 P.3d 963

2020 MT 213 A

VOTE SOLAR, Montana Environmental Information Center, and Cypress Creek Renewables, LLC, Plaintiffs and Appellees,

and

WINData, LLC, Plaintiff-Intervenor and Appellee,

v.MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, Montana Public Service Commission, Defendant and Cross-Appellant,NorthWestern Corporation, d/b/a NorthWestern Energy, Defendant and Appellant,andMontana Consumer Counsel, Defendant-Intervenor.

DA 19-0223

Supreme Court of Montana.

Argued: February 26, 2020

Submitted: March 3, 2020

Decided: August 24, 2020

As Amended on Denial of Rehearing: October 6, 2020

For Appellant NorthWestern Energy: Ann Hill, Al Brogan (argued), NorthWestern Energy, Helena, Montana

For Cross-Appellant Montana Public Service Commission: Zachary Taylor Rogala (argued), Justin Wade Kraske, Montana Public Service Commission, Helena, Montana

For Appellees Vote Solar and Montana Environmental Information Center: Jenny K. Harbine (argued), Earthjustice, Bozeman, Montana

For Appellee Cypress Creek Renewables, LLC: Maria Phillips Barlow, Attorney at Law, Portland, Oregon

For Intervenor and Appellee WINData, LLC: Monica J. Tranel (argued), Tranel Law Firm, P.C., Missoula, Montana

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

Chief Justice Mike McGrath delivered the Opinion of the Court:

¶1 This case stems from challenges by Vote Solar,¹ the Montana Environmental Information Center,² and Cypress Creek Renewables, LLC,³ (collectively "VS-MEIC") to the Montana Public Service Commission ("PSC") Order Nos. 7500c and 7500d, in which the PSC reduced standard-offer contract rates and maximum contract lengths for small solar qualifying facilities ("QFs"). On April 2, 2019, Montana's Eighth Judicial District Court issued an order vacating and modifying PSC Order Nos. 7500c and 7500d.

The PSC and NorthWestern Energy ("NorthWestern")⁴ appeal. We affirm and remand to the PSC with instructions.

¶2 We restate the issues on appeal as follows:

Issue One: Whether the District Court erred when it determined that the PSC arbitrarily and unlawfully reduced solar QF standard-offer rates by excluding carbon dioxide emissions costs and NorthWestern's avoided costs of operating its internal combustion engine resource units from the avoided-cost rate.

Issue Two: Whether the District Court erred when it concluded that the PSC arbitrarily and unreasonably calculated solar QFs’ capacity contribution in determining avoided costs.

Issue Three: Whether the District Court erred when it determined that the PSC arbitrarily and unreasonably reduced maximum-length contracts to 15 years for solar QFs.

FACTUAL AND PROCEDURAL BACKGROUND

¶3 Before addressing the merits of the case, we contextualize the issues presented by providing necessary background of applicable federal and state law, historical practices of the PSC in setting contract lengths and standard-offer rates, and the relevant factual and procedural history of the present action.

PURPA

¶4 In 1978, Congress enacted the Public Utility Regulatory Policies Act ("PURPA") to reduce American dependence on fossil fuels, encourage renewable energy development, and promote increased energy efficiency. 16 U.S.C. § 824a-3 ; FERC v. Mississippi , 456 U.S. 742, 745-46, 102 S. Ct. 2126, 2130, 72 L.Ed.2d 532 (1982) ; Small Power Prod. and Congregation Facilities; Regulations Implementing Sec. 210 of the Pub. Util. Reg. Pol. Act of 1978 , Order No. 69, 45 Fed. Reg. 12,214, 12,215 (Feb. 25, 1980). PURPA aims to eliminate significant barriers to the development of alternative energy sources, including the reluctance of traditional electric utilities to purchase power from and sell power to non-traditional facilities and the financial burdens imposed upon alternative energy sources by state and federal utilities. Californians for Renewable Energy v. Cal. PUC , 922 F.3d 929, 932 (9th Cir. 2019) (citing Indep. Energy Producers Ass'n, Inc. v. Cal. Pub. Utils. Comm'n , 36 F.3d 848, 850 (9th Cir. 1994) ). PURPA charges the Federal Energy Regulatory Commission ("FERC") with enacting PURPA's implementing regulations. Californians for Renewable Energy , 922 F.3d at 931.

¶5 Section 210 of PURPA requires large electric utilities to purchase energy from small power production QFs at standard-offer rates. 18 C.F.R. §§ 292.201, 292.203, 292.204. Small power QFs have a nameplate capacity of 80 megawatts ("MW") or less and produce electric power from biomass, waste, or renewable resources such as wind, water, or solar energy. 18 C.F.R. § 292.204(a), (b) ; 16 U.S.C. § 796(17)(A). Rates must be "just and reasonable" to consumers, "in the public interest," and nondiscriminatory to the QF to "encourage" renewable energy development and allow small QFs to "become and remain viable suppliers of electricity." 18 C.F.R. § 292.304(a) ; 16 U.S.C. § 824a-3(a), (b) ; Whitehall Wind, LLC v. Mont. Pub. Serv. Comm'n , 2010 MT 2, ¶ 7, 355 Mont. 15, 223 P.3d 907 ( Whitehall Wind I ).

¶6 When setting the purchase price, QFs must be compensated at a rate equal to the utility's full avoided cost. 18 C.F.R. § 292.304(b)(2) ; Am. Paper Inst. v. Am. Elec. Power Serv. Corp. , 461 U.S. 402, 406, 103 S. Ct. 1921, 1924, 76 L.Ed.2d 22 (1983). Avoided costs are "the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source." 18 C.F.R. § 292.101(b)(6) (emphasis added). Capacity costs are those costs incurred from providing the capability to deliver energy, consisting primarily of the capital costs of energy storing facilities. FERC Order No. 69 at 12,216.

Energy costs are costs associated with energy production, including operating and maintenance expenses. FERC Order No. 69 at 12,216. By limiting the purchase price to a utility's avoided cost, Congress sought to achieve a balance between the interests of ratepayers and generators. Energy purchased at the utility's avoided cost is reasonable for consumers because it is equivalent in price as if the utility generated the power itself or purchased it from another source. S. Cal. Edison Co., San Diego Gas & Elec. Co. , 71 FERC ¶ 61,269, 62,280 (June 2, 1995).

¶7 The Dissent adopts the incorrect argument promoted by the Montana Consumer Counsel ("Consumer Counsel")⁵ that the most critical factor of avoided-cost analysis is protecting the ratepayer. Were that the case, there would be no purpose to PURPA, which is to preclude discrimination in the market place for sources of energy that provide an alternative to fossil fuel development. Of course, that purpose must be undertaken along with the endeavor to hold the ratepayer neutral or indifferent to the source of energy they consume. Moreover, NorthWestern's frequently-uttered trope that the requirements of PURPA and thus approval of solar sources of energy will wildly increase the rates charged to consumers finds little basis of support in this record.

¶8 FERC does not provide a specific method for establishing the avoided-cost rate but requires that any state-adopted method be consistent with its implementing regulations. See 18 C.F.R. § 292.304(c). FERC has thus provided a list of guidelines for states to consider when developing avoided-cost rates, including (1) the usefulness of the QF's energy during system emergencies; (2) the individual and aggregate value of energy and capacity from QFs to the utility's system; (3) the QF's smaller capacity increments and shorter lead times—the time it takes to make, produce, or deliver energy; (4) the QF's ability to enable the utility to defer capacity additions and decrease reliance on fossil fuels; and (5) the utility's cost savings resulting from decreased line losses of energy during transmission from the QF. 18 C.F.R. § 292.304(e)(2)(v)-(vii), (3), (4). FERC has clarified that energy and capacity avoided costs should be considered together, directing utilities to submit associated energy costs of each planned unit along with the estimated capacity cost of planned capacity additions, such that the calculation of avoided costs "includes the lower energy costs that might be associated with the new capacity." FERC Order No. 69 at 12,218.

¶9 When determining avoided-cost rates, PURPA mandates states to consider "the terms of any contract ... including the duration of the obligation ...." 18 C.F.R. § 292.304(e)(2)(iii). Neither PURPA nor FERC regulations set a specific contract length requirement for QFs. However, under PURPA, contract duration is closely intertwined with contract rates. Public utilities must encourage QF development in establishing avoided costs, in part by encouraging long-term contracts to "enhance the economic feasibility" of QFs. 16 U.S.C. § 824a-3(a) ; FERC Order No. 69 at 12,226; § 69-3-604(2), MCA. QFs are to be able to enter contractual commitments based on estimates of future avoided costs to provide certainty regarding potential return on investments. FERC Order No. 69 at 12,224.

Montana's Mini-PURPA

¶10 State utility regulatory agencies implement PURPA through rulemaking. Whitehall Wind I , ¶ 9 ; Californians for Renewable Energy , 922 F.3d at 931. The relevant state agency here is the PSC. In 1981, Montana adopted PURPA, i.e., "mini-PURPA," §§ 69-3-601 through 604, MCA. In Montana, QFs with a nameplate capacity of 3 MW or less are eligible for standard-offer rates—NorthWestern's "QF-1 Tariff Rate"—at issue in this case.⁶ Admin. R. M. 38.5.1902(5). Like PURPA, Montana's "mini-PURPA" requires that avoided-cost rates and contract lengths be sufficient to "enhance the economic feasibility of [QFs]," at rates that allow the QF to become and remain viable suppliers of electricity. Section 69-3-604(2), MCA ; Whitehall Wind I , ¶ 7.

The PSC's Historical QF Rate Setting Practices

Avoided-Cost Rate

¶11 In Montana, the PSC requires NorthWestern to submit biennial...