A Montana judge has ruled that NorthWestern Energy used faulty reasoning to avoid acquiring energy from small renewable energy projects as required by Montana law, and that state regulators gave them an illegal free pass. 

The Montana Environmental Information Center filed suit in November against NorthWestern for not developing community renewable energy projects, or CREPs, and against the PSC for granting waivers to the utility in 2015 and 2016.

A 2005 law requires NorthWestern to add small renewable energy projects producing 25 megawatts or less to its generation supply. However, the company hasn't hit its required total of 65.4 megawatts. 

Since 2012, the PSC has waived compliance with the law and not issued any penalties. PSC staff has estimated NorthWestern’s penalty for noncompliance would have been $1.2 million for each year it received a waiver. 

The MEIC argued the PSC should be compelled to enforce the law and that NorthWestern should have to take on projects. 

Lake County District Court Judge James Manley, ruling in Cascade County District Court, found that NorthWestern used unreasonable construction timelines when considering projects, skirted simple due diligence, and ignored bids that would have met CREP requirements. 

Similarly, he found the PSC's decision to accept NorthWestern's reasoning was "arbitrary and clearly erroneous." 

Manley reversed the waivers from 2015 and 2016, but stopped short of requiring the PSC to assess fines in his ruling, or requiring NorthWestern to take action. 

MEIC's Brian Fadie applauded the ruling, and said that he expects the PSC will have to enforce fines against NorthWestern. 

“This is a pretty cut-and-dry ruling that seems like it would stand up to any appeal,” he said. “NorthWestern has fought this law, pretty much tooth and nail, since it was passed in 2005. When someone finally took a hard look at the process they were using to acquire these projects, it was just obvious they were undermining them to result in no projects being built.”

A NorthWestern lawyer said the company is disappointed in the ruling, and that it is still evaluating whether it will appeal. She said the company didn't take on renewable projects because of factors beyond its control, reasoning that the PSC agreed with when it passed the waivers. 

“We just have been unable to comply, but we have taken all reasonable steps,” said Sarah Norcott. 

The waivers were passed by the all-Republican commission in September 2018 by a 3-2 margin. 

Commissioner Travis Kavulla, who voted against the waiver, faulted NorthWestern for putting unreasonable time constraints on projects. 

Commissioner Tony O'Donnell supported the waiver, calling the 2005 law unreasonable and saying that the waiver would send a message to the state Legislature. 

Both viewpoints were used in Manley's ruling overturning the waivers.

He quoted the "send a message" statement, in italics, as an example that "commissioners who voted to grant the waivers asserted that their reason for doing so was their personal opinions that the CREP law itself was unreasonable," and not a decision that was based on state law. 

Manley rejected an argument from the PSC that the transcript of the September work session where commissioners discussed that reasoning should be excluded from the "administrative record" in the case, despite that the PSC submitted the transcript as part of the "certified copy of the administrative record" in the case. 

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He also cited evidence that NorthWestern had unreasonable expectations for the projects' construction, even by their own standards. When opening up for 2015 bids on CREPs, NorthWestern required projects to become operational in 18 months. But NorthWestern previously said that such a process "requires at least 24 months," plus more time for PSC approval, Manley wrote. 

He dinged NorthWestern for agreeing to a pair of 2015 projects that were later found not to comply with in-state ownership requirements. He found that the ownership revelations were not "outside the control" of NorthWestern, but rather were a failure to "conduct marginal due diligence."

Manley also found that NorthWestern, after rejecting the pair of 2015 projects, unfairly didn't consider a different project that "had a perfect 10-out-of-10 viability score and the lowest costs of any CREP proposal." He said that NorthWestern cited environmental risks with the project but failed to present any evidence of those risks. 

Norcott disagreed point-by-point with Manley's reasoning, including citing complex corporate structures for the ownership issues and maintaining that 18 months was a reasonable construction timeline. 

She and a NorthWestern spokesperson also pointed to the company's current CREP portfolio, which includes two wind projects and three hydoelectric projects that produce a total of 36.4 megawatts, about half of what's required. The PSC is also considering granting CREP status to a 20 megawatt solar farm near Billings that is scheduled to come online in 2021. 

Fadie found the CREP ruling to be in line with a pair of recent rulings faulting NorthWestern that found that the PSC deliberately created contract and pricing terms that made solar energy projects uneconomical. 

“I do think there’s a theme here,” he said. 

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