Supreme Court orders Montana’s Public Service Commission to reconsider lack of renewable energy
The Montana Supreme Court justices at a hearing on May 11, 2023. (Photo by Blair Miller, Daily Montanan)
Editor’s note: This story has been updated to reflect comments made by NorthWestern Energy.
In a complex decision that stretches back nearly a decade, the Montana Supreme Court ruled that two wrongs don’t make a court case right.
In a decision released Wednesday, a unanimous court ruled that while Montana’s largest energy provider, NorthWestern Energy, did not follow the law by trying to add more renewable, local energy to its portfolio, neither the Montana Public Service Commission, nor the district court in Great Falls properly handled the case, either.
The case, which has bounced from the commission to the courts since 2016, also concerned the Montana Legislature, which in 2021, repealed part of the law that would require public utilities to add more local renewables to its portfolio.
The case will now head back to the Montana Public Service Commission, via the district court, to decide whether NorthWestern considered renewable projects correctly, and whether to fine the company for not complying with a law that hasn’t been on the books for three years.
The heart of the case centers on the Renewable Power Production and Rural Economic Development Act. That required public utility companies like NorthWestern to solicit bids and purchase power for renewable energy that was owned or based by Montanans, as long as it wasn’t excessively expensive. These projects were designated as Community Renewable Energy Projects. However, both the utility companies and the PSC struggled to meet the requirements of the law. Montana law allowed the PSC to grant waivers to energy companies which tried, but ultimately couldn’t meet the law’s requirement.
The case reaches back to 2015 and 2016 when NorthWestern considered bids on projects, but then opted to select none. The Montana Public Service Commission ruled at the time that NorthWestern failed in 2015 to meet its obligation when it had viable options, but decided not to fault the company a year later when it declared that nearly a dozen projects were not cost effective.
Later, Cascade County Judge James Manley ordered a $2.52 million fine against NorthWestern for not complying with the law.
In its 37-page ruling on Wednesday, the Montana Supreme Court was sharply critical of NorthWestern for not appearing to take its obligation to the law seriously, but also said that Manley had erred by assessing the fine.
Ultimately, the case will wind its way back to the Public Service Commission to decide several different lingering issues, including whether NorthWestern made fair enough calculations in 2016 to conclude that there were no cost competitive projects that it could add to its portfolio that would satisfy the law. And, the commission must also decide whether NorthWestern’s failure in 2015 should result in a fine.
In its decision, the high court also criticized the Public Service Commission, in part, for creating the long-winding legal mess because commissioners then admitted that they were trying to send a message to the Legislature about their frustration with the state law at the time, something the court said strayed beyond their mandate of interpreting public utility law, regardless of their individual, personal opinions.
The Montana Public Service Commission that will decide the case currently may look a lot different than the commission that originally heard the cases, beginning in 2015. However, the debate about renewable energy, fossil fuels and NorthWestern are all familiar themes to the all-Republican regulatory commission.
2015 case
The Supreme Court decision also affects two distinct but related cases for NorthWestern and the PSC.
In 2015, NorthWestern put out proposals to purchase more than 65 megawatts from community-based renewable projects. However, it said that the projects must be operational within that year — a provision that the courts said demonstrated the utility company was less-than-serious about the law because such a requirement would have been impossible for nearly any new community-based resource.
In 2015, NorthWestern received four qualifying proposals, but several may not have included local ownership, and the others would not be able to come online that quickly. NorthWestern asked the Public Service Commission for a waiver.
2016 case
In 2016, NorthWestern then put out another bid for projects, and it received 11 proposals, but the utility company rejected all of them because it said that none of them were cost competitive, and then petitioned the PSC for another waiver.
The two cases — from 2015 and 2016 — were consolidated into a single case before the PSC. In 2018, the PSC ruled that NorthWestern should be given a waiver for 2016, but not 2015.
However, later in 2018, the commission, by a split 3-to-2 vote, voted to grant waivers to NorthWestern for both cases because it “wanted to send a message” to lawmakers about the “nearly impossible” law.
In 2021, the Republican-led legislature repealed the law, but it did not have an effect on the pending litigation.
Commissioners struggled during those meetings between managing the unwieldy law and the utility company’s actions. Former PSC Commissioner Roger Koopman said:
“That the CREP law is short-sighted and [an] 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.’”
The Supreme Court also found that the PSC did not consider whether NorthWestern had taken all the steps it should have, and instead focused on the commissioners’ perceived problems with the law.
“The (Public Service) Commission’s factual findings are sparse, at best, and fail to provide sufficient basis to support its conclusions,” said the court in its decision written by James Jeremiah Shea. “What the record evidence does show is that NorthWestern did not take all reasonable steps to meet its CREP obligations.”
The ruling also deeply criticized NorthWestern Energy for either not trying to comply with the standards of the law, or rejecting reasonable proposals.
“In its 2015 request for proposals, NorthWestern unreasonably required projects to be operational by the end of the year, while it had previously acknowledged that no CREP project has ever been newly constructed in less than two years,” the court said. “The record evidence demonstrates that NorthWestern was not prevented from compliance by ‘legitimate reasons’ beyond its control…An initial screening and self-serving assurances do not amount to even the most marginal due diligence NorthWestern could have conducted.”
However, the court also determined that the Public Service Commission was not blameless, turning what should have been an administrative decision into political commentary.
“Transcripts from the work session indicate that at least part of the commission’s motivation for granting NorthWestern’s waiver requests was to ‘send a message’ to the Legislature about its belief that CREP requirements were unreasonable,” the court opinion said. “This rationale is not grounded in the authority granted to the commission by the Legislature, and we are not satisfied that the commission ‘made a reasoned decision’ based on a ‘rational connection between the facts found and the choices made.’”
Finally, the Supreme Court said that Judge Manley had exceeded his authority by levying a fine to NorthWestern, and noted that only the Public Service Commission had that power.
The court, including justices Laurie McKinnon, Ingrid Gustafson, Beth Baker and Dirk Sandefur, order Manley to send the case back to the commission to determine whether the 2016 bids were beyond a cost-cap when compared to other available power supplies. It also ordered the issue of fines for both years to go back to the Public Service Commission.
The Montana Environmental Information Center, which brought the challenge, praised the ruling.
“NorthWestern Energy has done everything it can, including breaking the law, to avoid providing its customers with clean, affordable electricity,” said Anne Hedges, co-director of MEIC. “It’s time for the PSC to stop enabling NorthWestern’s outdated behavior. The PSC should insist NorthWestern save its customers money, reduce risks, and diversify its portfolios by investing in clean electricity instead of NorthWestern’s approach of looking in the rearview mirror. The PSC has an opportunity to help NorthWestern move forward and protect customers by adopting a rule that requires consideration of risks and costs posed to our energy system and customers’ pocketbooks by a changing climate.”
Meanwhile, a spokeswoman for NorthWestern disputed the characterization that the company did not take clean energy more seriously.
“To be clear, NorthWestern Energy supports programs and resources that support Montana communities that are economically disadvantaged. However, we believe any fines associated with Montana’s CREP program are not justified as we believed we took all reasonable steps,” said spokesperson JoDee Black. “We are pleased with the Montana Supreme Court’s decision to vacate the district court’s decision to impose fines as the district court was without authority to do so.
“NorthWestern Energy’s portfolio serving our Montana customers is from 58% carbon-free generation, compared with a national average of 40%.”
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