Court Opinion

ID: 4567756
Source: CourtListenerOpinion
Date Created: 2020-09-22 19:06:58.027511+00
Date Added: 2024-06-11T13:24:59.303877
License: Public Domain

09/22/2020

                                      DA 19-0363
                                                                              Case Number: DA 19-0363

              IN THE SUPREME COURT OF THE STATE OF MONTANA

                                     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,

    and

NORTHWESTERN CORPORATION, d/b/a
NORTHWESTERN ENERGY,

          Intervenor, Respondent,
          and Appellant,

    and

THE MONTANA CONSUMER COUNSEL,

          Intervenor.

APPEAL FROM:        District Court of the Eighth Judicial District,
                    In and For the County of Cascade, Cause No. BDV-17-0776
                    Honorable James A. Manley, Presiding Judge

COUNSEL OF RECORD:

            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

                                           Submitted on Briefs: January 15, 2020

                                                      Decided: September 22, 2020

Filed:
                        oe,,6tA- -if
               __________________________________________
                                 Clerk

                                       2
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, ___ P.3d ___.

                                            3
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,

                                             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

     1
     While the establishment of a LEO turns on the QF’s actions and such commitment also
commits the utility to buy electricity from the QF, the utility has the option of petitioning FERC
under 18 C.F.R. § 292.310 for relief from its mandatory purchase obligation.
                                                5
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

     2
     The regulation, as well as Montana’s mini-PURPA, § 69-3-603, MCA, assumes the parties
have been engaged in negotiations that have come to an impasse.
                                             6
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

                                            7
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 calculation of $54.19/MWh. On July 20, 2016,

NorthWestern responded that it had made an error in its latest avoided-cost calculation. On

July 29, 2016, NorthWestern provided an updated avoided-cost estimate of $45.78/MWh,

its third estimate.

¶14    On September 9, 2016, after continued negotiations, NorthWestern again altered the

avoided-cost proposal and provided MTSUN with its fourth avoided-cost estimate of

$39.14/MWh, over $6/MWh lower than its third estimate. MTSUN then responded

requesting additional information regarding the decrease by about $6/MWh from its July

29, 2016 estimate. Once again, NorthWestern responded that it had made an error in its

                                            8
calculation and sent a corrected calculation of $41.77/MWh, its fifth avoided-cost

calculation. MTSUN disagreed and the President of MTSUN stated the following in reply:

       As you are aware, avoided cost is essential in making a sound and prudent
       business decision to proceed with project development. Uncertain avoided
       costs, or costs that are all over the place does not provide developers with
       any assurance hindering our ability to move forward with our project.

       As you can see per the pricing history below, we have never seen such wide
       “swings” in any other utilities [sic] avoided cost calculations in such short
       span of time (May 2016-September 2016) and given that we are at this since
       October of 2015 I would ask for my last call to go over the following with
       our and your experts next week. We would ask for next Friday for a
       conference call to put this matter to rest.

       Lastly, I would like to formally ask a member of the Montana Public
       Consumer advocate or PSC to be also present for this call.

Email from Ros Rocco Vrba, MTSUN President, to NorthWestern representatives
(September 9, 2016).

¶15    On November 23, 2016, after continued negotiations and having received a revised

draft of the PPA from NorthWestern, MTSUN again responded with comments and

suggested edits to the PPA. In response, on November 30, 2016, NorthWestern sent

MTSUN a revised 25-year avoided-cost rate of $43.48/MWh inclusive of carbon, its sixth

and final avoided-cost calculation. NorthWestern’s proposed avoided-cost rate included:

(1) the avoided cost of energy inclusive of carbon of $40.86/MWh; (2) the

avoided-capacity cost of $5.57/MWh using a capacity contribution percentage of 7.8%;

and (3) an adjustment of -$2.95 for regulation, spinning reserves, and supplemental

reserves.

¶16    While MTSUN generally agreed with the avoided cost of energy, it disagreed with

NorthWestern’s calculation of the capacity contribution of its project. MTSUN’s proposed

                                            9
energy avoided costs, including carbon, was actually slightly lower than NorthWestern’s

at $40.18/MWh.      However, MTSUN calculated a capacity contribution of around

$20/MWh and a total avoided-cost rate of $63.70/MWh.

¶17    The major difference in the overall price between the parties concerned the

methodologies used to calculate capacity avoided costs. MTSUN relied on a proxy method

using a power plant that NorthWestern was proposing to build in the near future as stated

in its 2015 Integrated Resource Plan, which was an internal combustion engine (“ICE”)

unit. NorthWestern was relying on the peaker method, thus using the utility’s least cost

resource as a comparison for avoided costs that the MTSUN project would provide.

¶18    On December 21, 2016, MTSUN returned a signed PPA to NorthWestern

containing its final edits. At this point, while NorthWestern had not executed the PPA,

MTSUN asserted that it had committed itself to sell electricity to NorthWestern, thereby

incurring a LEO. The parties were in agreement on virtually all material terms. Regarding

avoided energy costs with a carbon adder, MTSUN calculated $40.18/MWh and

NorthWestern calculated $40.86/MWh. Both parties were in agreement on a 25-year

contract term. However, negotiations regarding capacity contribution had stalled out.

MTSUN’s Petition to the PSC

¶19    On December 23, 2016, after being unable to agree on capacity avoided costs,

MTSUN filed its petition with the PSC to establish the terms of its PPA with

NorthWestern.3 In its petition, MTSUN requested that the PSC “resolve any potential

   3
     On January 6, 2017, MTSUN amended and resubmitted its petition since the PSC did not
accept MTSUN’s December petition as complete.
                                           10
dispute that may arise regarding [NorthWestern’s] obligation to purchase MTSUN’s

electric generation and affirm the proposed form of PPA in accordance with M.C.A. § 69-

3-603 . . . .” MTSUN requested $63.70/MWh in total avoided costs, which relied on the

proxy method to calculate energy avoided costs inclusive of carbon of $40.18/MWh,

capacity avoided costs of $25.36/MWh, and an adjustment for integration service costs of

$1.84/MWh.

¶20   MTSUN specifically stated it particularly “disagreed with [NorthWestern]’s

capacity contribution of the MTSUN project, although attempts to further negotiate were

stonewalled by [NorthWestern].” MTSUN asserted it was appropriate to use all 12 months

of the year to calculate MTSUN’s capacity contribution factor. The project would deliver

capacity during peak hours to help NorthWestern close its 28% capacity deficit throughout

all 12 months and the project would displace some of NorthWestern’s planned summer

capacity that may otherwise be provided by a portfolio of planned gas-fired resources

(NorthWestern’s 2015 Integrated Resource Plan indicated it intended to build nearly 686

MWs of new gas fired resources over the next decade). Regarding energy avoided costs,

MTSUN requested a slightly lower energy avoided-cost rate of $27.33/MWh

($40.18/MWh with a carbon adder) than NorthWestern’s November 30, 2016 offered rate

of $28.68/MWh ($40.86/MWh with a carbon adder).

¶21   In its petition, MTSUN also contended that NorthWestern “utilized delay tactics,

such as not responding to MTSUN’s request for information and [sending] conflicting and

unjustified forecast avoided-cost estimates to stymie MTSUN’s ability to obtain a PPA to

sell its energy and capacity to [NorthWestern].” MTSUN asserted NorthWestern’s actions

                                           11
during negotiations were inconsistent with PURPA, Montana’s mini-PURPA, and the

federal and state regulations implementing those statutes. MTSUN also alleged that

NorthWestern’s numerous and varied avoided-cost calculations: “(1) [were] inconsistent

with PURPA and Montana Law; and (2) were not calculated in a manner consistent with

approved and existing methodologies in Montana.”          Further, MTSUN asserted that

NorthWestern’s wide-ranging estimates of avoided-costs forecasts for the MTSUN project

were contrary to well-known and established fuel commodity prices in the United States.

The PSC’s Orders

¶22    After MTSUN filed its petition, the PSC granted intervention motions to

NorthWestern, the Montana Department of Natural Resources and Conservation

(“DNRC”),4 and the Montana Consumer Counsel on January 25, 2017. The PSC held a

hearing on April 28, 2017, and a work session on June 29, 2017. On July 21, 2017, the

PSC issued its Final Order 7535a setting the contract terms and rates for the MTSUN

project. In re MTSUN, LLC, D2016.12.103, Order No. 7535a (Jul. 21, 2017).

¶23    The PSC’s Final Order No. 7535a altered all the terms of NorthWestern and

MTSUN’s PPA, including those terms on which the parties had essentially reached

agreement. The PSC determined that MTSUN had not established a LEO since MTSUN’s

avoided-cost calculations were inconsistent with NorthWestern’s. The PSC dropped the

avoided energy cost rate to $16.98/MWh, concluded that carbon costs would no longer be

   4
     Since MTSUN had an executed lease with DNRC on school trust land that would provide an
estimated annual tax revenue of around $1.15 million to the State of Montana, DNRC became an
interested party.
                                            12
included in the avoided-cost calculations since the current federal administration had an

oppositional view to emission regulation, calculated an avoided capacity cost rate of

$10.53/MWh, to be paid only in peak load hours, and reduced the PPA contract length

from 25 to ten years. Order No. 7535a, ¶¶ 128-132. The PSC also, in a stated effort to

avoid an appearance of discrimination against QFs, ordered that the ten-year contract

length be applied symmetrically to NorthWestern’s other utility assets. Order No. 7535a,

¶ 112.

¶24      MTSUN and NorthWestern each requested reconsideration of the order. MTSUN

raised five issues for reconsideration: (1) the PSC’s finding that MTSUN did not establish

a LEO; (2) the PSC’s avoided energy cost calculation; (3) the PSC’s decision to exclude

carbon adjustments; (4) the PSC’s avoided capacity cost calculation; and (5) the PSC’s

decision to set a 10-year contract length for the PPA.          NorthWestern requested

reconsideration on the PSC’s symmetrical application of the ten-year contract term to its

other resources. NorthWestern asserted, inter alia, that ten years was too short since

NorthWestern’s 2015 Integrated Resource Plan identifies needs over a 20-year planning

horizon and that a short ten-year contract term conflicts with the PSC’s rules regarding a

planning horizon.

¶25      On November 29, 2017, the PSC issued its Order on Reconsideration, Order No.

7535b, in response to MTSUN and NorthWestern’s requests. In Order No. 7535b, the PSC

amended its earlier contract length decision of ten years to 15 years and maintained its

symmetry finding to NorthWestern’s other assets. The other issues raised by MTSUN

remained unchanged.

                                           13
       Whether MTSUN Incurred a LEO

¶26    The PSC concluded MTSUN had not established a LEO and rejected MTSUN’s

assertion that the PSC’s own Whitehall Wind LEO test was unlawful per FERC’s FLS

Energy declaratory order. See FLS Energy, 157 FERC at 61731.5 Accordingly, the PSC

applied the two-prong test that it established in the Whitehall Wind decision, which requires

that: (1) the QF tendered a power purchase agreement to the utility “with a price term

consistent with the utility’s avoided costs,” with “specified beginning and ending dates,”

and with “sufficient guarantees to ensure performance” during the term of the contract; and

(2) the QF must tender “an executed interconnection agreement.” Order No. 7535a, ¶ 35

(emphasis added). While FERC declared the Whitehall Wind LEO test to be unlawful and

inconsistent with PURPA, see FLS Energy, 157 FERC at 61731, the PSC justified its

continued reliance on the Whitehall Wind LEO test on the basis that only prong two of the

test was invalidated by FERC’s decision and noted that FERC’s declaratory order was

advisory only and non-binding unless enforced in federal court.6 Order No. 7535a, ¶¶ 35,

41; Order No. 7535b, ¶ 120.

   5
     In FLS Energy, FERC declared the PSC’s LEO test unlawful but declined to take enforcement
action. Since FERC’s declaratory judgments are non-binding, the PSC continued applying its
Whitehall Wind LEO test.
   6
     The parties in FLS Energy did pursue litigation in the United States District Court for the
District of Montana. See Bear Gulch Solar, LLC v. Mont. PSC, 356 F.Supp.3d 1041 (D. Mont.
2018). The court upheld FERC’s declaratory order concluding that the PSC’s Whitehall Wind
LEO test was unlawful. Bear Gulch, 356 F.Supp.3d at 1051-52. However, the Ninth Circuit
overruled the district court’s decision finding that the issue was moot since the PSC had initiated
rulemaking to change its LEO test. See Bear Gulch Solar, LLC v. Mont. PSC, 775 Fed. Appx. 295
(9th Cir. 2019). While the PSC no longer requires a fully executed interconnected agreement,
prong one, which is at issue here, remains in its revised LEO test. See Admin. R. M. 38.5.1909.
                                                14
¶27    The PSC found that MTSUN’s estimate of $63.70/MWh ($40.18/MWh for

avoided-energy costs inclusive of carbon and $25.36/MWh for capacity-avoided costs) was

70% higher than the PSC’s avoided-cost estimate of $37.55/MWh. Order No. 7535a, ¶ 42.

The PSC concluded that since NorthWestern “gave MTSUN several avoided-cost

calculations throughout the negotiations and MTSUN did not adequately explain why it

did not accept the rates,” MTSUN did not sufficiently commit itself to selling energy and

a LEO was not established. Order No. 7535b, ¶ 18. Therefore, it did not meet the first

prong of the Whitehall Wind LEO test.

       Avoided Energy Cost Calculations

¶28    The PSC estimated the avoided energy costs without a carbon adder of the MTSUN

project to be $17.40/MWh. Order No. 7535a, ¶¶ 61, 90; Order No. 7535b, ¶ 69. While the

PSC acknowledged that a “QF is not required to predict the precise avoided cost,” Order

No. 7535a, ¶ 36, and MTSUN and NorthWestern’s avoided-cost-of-energy calculations

were virtually identical, the PSC decided to calculate a new avoided energy cost. Since

the PSC found that MTSUN did not incur a LEO, the PSC determined that it was not

obligated to base its avoided-cost calculation on forecast energy cost information available

to the parties at the time of MTSUN’s petition filing in December 2016 and chose to rely

on March 2017 forward prices to estimate avoided energy costs.7 Order No. 7535b,

¶¶ 60-62.

   7
      MTSUN argued the PSC’s reliance on March 2017 forward prices resulted in deflated
avoided-cost calculations since forward wholesale market prices are seasonally dependent, and the
March 2017 forward prices were affected by atypically high generation because of performance
related to hydro facilities in the Pacific Northwest due to it being an abnormally high runoff year.
                                                15
¶29    The peaker method used by the PSC based the avoided costs on NorthWestern’s

least-cost portfolio of resources and under the assumption that NorthWestern is operating

under a “long-1 position.”8 Order No. 7535a, ¶¶ 46-47, 51. Specifically, that method

provides that “NorthWestern assigns a new facility’s projected energy production a value

equal to the dispatch cost of the marginal unit in NorthWestern’s control, and not the

market price, when the utility’s customer loads are fully supplied from NorthWestern’s

owned or contracted resources and when the market price is higher than those dispatch

costs.”9 Order No. 7535b, ¶ 65. Accordingly, in operating under the long-1 position, the

PSC relied on “only existing resources’ dispatch costs” for calculating MTSUN’s avoided

energy costs. Order No. 7535b, ¶ 65.

           Exclusion of the Carbon Adder Adjustment

¶30    The PSC opted to exclude costs attributable to the potential future regulation of

carbon dioxide emissions. The PSC adopted the same findings it used in Vote Solar by

declining to use a carbon emission adjustment for calculating avoided-cost estimates for

MTSUN. Order No. 7535b, ¶ 78; Vote Solar, ¶¶ 25, 40-46. The PSC concluded that

   8
     NorthWestern defines its “long-1 position” as occurring when “NorthWestern’s supply is
greater than load and at least one of its dispatchable generation resources costs less than the current
market price; in this case, MTSUN’s output avoids the running cost of the marginal dispatchable
resource.”
   9
     While the PSC relied on NorthWestern’s long-1 position, record evidence indicates that
NorthWestern is not in fact capable of meeting customer loads through its owned or contracted
resources since it has a 28% capacity deficit (NorthWestern’s owned or contracted resources can
supply around 900 MWs, while its peak loads in summer and winter demand around 1200 MWs).
When NorthWestern is unable to meet customer load with its supply, it must purchase energy on
the open market from nearby utilities, including Bonneville Power Administration and others.
                                                  16
“including unknown future costs for carbon dioxide emissions in an avoided-cost

calculation unnecessarily exposes customers to risk.” Order No. 7535b, ¶ 70.

¶31     This decision was contrary to its decision in In re Crazy Mountain, Docket

D2016.7.56, Order No. 7505b (Dec. 22, 2016), which was issued one day before MTSUN

filed its petition with the PSC. In Crazy Mountain, the PSC established a carbon adder of

$9.65/MWh for the time period of 2019-2043.                Moreover, it was contrary to

NorthWestern’s own testimony that the PSC “could apply the same $9.65/MWh carbon

adder it adopted in Order 7505b [Crazy Mountain]” to MTSUN’s avoided-cost

calculations. Order No. 7535a, ¶ 54.

¶32     As it did in the Vote Solar proceeding, the PSC justified departure from its own

precedent, noting that “[a]ny observer would readily concede that the national political

situation has been fluid and rapidly evolving, including with respect to the regulation of

emissions such as carbon dioxide.” Order No. 7535b, ¶ 77; Vote Solar, ¶ 25. The PSC

based its decision on the current presidential administration’s October 16, 2017 proposal

to repeal the Clean Power Plan, stating that “unique uncertainty surrounds future emissions

pricing.” Order No. 7535b, ¶ 77.

           Calculation of Avoided-Capacity Costs

¶33     The PSC adopted the “Southwest Power Pool” (SPP)10 method to calculate

MTSUN’s avoided-capacity costs. In doing so, the PSC declined to adopt NorthWestern’s

85/10 exceedance method that calculated a 9.6% capacity contribution and MTSUN’s

   10
     The SPP is a collective of regional power companies throughout the central United States.
NorthWestern is not a member.
                                             17
proposed method that calculated a 29.9% contribution ($25.36/MWh). The PSC also

declined to adopt MTSUN’s proposed methodologies used by six separate utilities

throughout the western United States that offer capacity contributions for solar fixed axis

systems ranging from 31% to 46%. Accordingly, in relying on the SPP method, the PSC

determined a 6.1% capacity contribution for the MTSUN project, amounting to

$10.76/MWh during on-peak hours (nearly $15/MWh less than MTSUN’s calculation).11

Order No. 7535a, ¶ 76; Order No. 7535b, ¶ 99. While NorthWestern had actually

calculated a 0% capacity contribution using the SPP method, the PSC adjusted it upwards

to 6.1% in accordance with its calculations in the Vote Solar docket since the analysis in

that proceeding included locational diversity of sampled resources and the PSC did not

conduct such analysis in MTSUN’s proceeding. Order No. 7535b, ¶ 99. The PSC

interpreted the SPP method in the same manner in the Vote Solar docket and relied only

on the selection of top load hours from only the peak-load month of each year, i.e. 22 hours

per year and 220 hours over the ten-year evaluation period. Order No. 7535b, ¶ 97; see Vote

Solar, ¶ 24. The PSC also relied on an aeroderiviative (“AERO”) unit coming online in

2019 as a proxy resource, instead of NorthWestern’s three 18 MW ICE units planned for

2019, to compare MTSUN’s avoided capacity costs. Order No. 7535a, ¶ 72; Order No.

7535b, ¶ 91. While the AERO unit was included in NorthWestern’s 2015 plan as a

potential resource to be constructed in 2025, the PSC acknowledged “the AERO unit is not

   11
      In declining to rely on other regional utilities’ solar capacity values, the PSC noted that
MTSUN did not “provide sufficient justification for the use of the other utilities’ solar capacity
values . . . .”
                                               18
a[] [preferred] resource in NorthWestern’s 2015 plan,” but found that “its fixed costs are a

proxy for the capacity value of the 2015 Plan’s selected ICE unit.” Order No. 7535a, ¶ 72.

         Contract Length of the PPA

¶34      Regarding its decision to cut MTSUN’s contract length from 25 to 15 years, the

PSC determined that “a 15-year maximum contract length was reasonable and in the public

interest, enhances economic feasibility of MTSUN, and was supported by record evidence

and precedent.” Order No. 7535b, ¶ 47 (overturning its prior decision in Order No. 7535a

that concluded a ten-year contract length was reasonable).             While MTSUN and

NorthWestern agreed regarding the 25-year contract length and this issue was not disputed,

the PSC reasoned that 15 years was lawful. The PSC acknowledged that none of the parties

advocated for or supported a 15-year contract length,12 but relied on a North Carolina utility

commission decision to limit QF contracts to 15 years. Order No. 7535b, ¶ 41.

¶35      The PSC relied on much of the same reasoning that it asserted in the Vote Solar

proceeding, see Vote Solar, ¶¶ 29-30, to support its decision to depart from its recent

precedent of 25-year QF contracts. The PSC rejected the use of its own definition of

“long-term” as defined in Admin. R. M. 38.5.8202(7) to QF contracts, finding that while

the definition provides guidance in defining a “long-term” contract, it fits more

appropriately in the context of electricity supply resource planning and procurement and is

therefore of limited applicability to QF contracts. Order No. 7535b, ¶¶ 31-32. The PSC

also cited to the record in the Vote Solar proceeding to support its conclusion that 15-year

   12
        The Consumer Counsel had advocated for a maximum contract length of 20 years.
                                              19
contract lengths were sufficiently long to make QFs economically feasible. Order No.

7535b, ¶ 35. However, in Vote Solar, ¶ 71, we held the PSC’s statement that the appellees

in Vote Solar supported a 15-year contract was erroneous. Like the QFs in Vote Solar,

MTSUN stated that shortening the contract length to less than 25 years without a higher

avoided-cost price would render the project economically infeasible since “the economic

feasibility of the project is dependent upon contract length, and that for a shorter contract,

MTSUN would require a higher price” to allow for reasonable certainty of return on

investment for its investors, as required by FERC Order No. 69, 45 Fed. Reg. at 12218.

Order No. 7535b, ¶ 42.

¶36    The PSC noted the willingness of MTSUN to accept an abbreviated contract length

in exchange for a higher price. However, the PSC concluded that it does not have the legal

authority to inflate the avoided-cost rate in order to encourage MTSUN to accept its

decision to reduce its contract length from 25 to 15 years. Order No. 7535b, ¶ 43.

Accordingly, the PSC rejected MTSUN’s contention that in order to encourage and

enhance the economic feasibility of QF projects, shorter contract lengths must be

accompanied by higher avoided-costrates.

       PSC Staff Memo

¶37    On October 3, 2017, in response to MTSUN’s and NorthWestern’s motions for

reconsideration of the PSC’s Final Order No. 7535a and prior to the PSC’s issuance of

Order No. 7535b, the PSC staff released a memo recommending reconsideration of its

                                             20
decisions on avoided energy costs, the exclusion of carbon costs, and contract length.13

Aside from requesting interested parties to initiate rulemaking to address the PSC’s LEO

test, see Order No. 7535b, ¶ 20, the PSC in Order No. 7535b did not adopt the

recommendations made in the staff memo.

¶38     Staff suggested that the PSC reconsider its decision on MTSUN’s avoided energy

costs and adopt a rate for avoided energy costs reflective of the $28.68/MWh price that

NorthWestern offered MTSUN in November 2016 just prior to MTSUN’s petition. Staff

reasoned that “MTSUN and NorthWestern were in virtual agreement regarding the level

of avoided energy costs” and that “it would be reasonable for the Commission to focus its

decision in this case on those matters involving substantial dispute between the parties,

particularly given guidance from FERC favoring amicable QF contract formation.” Staff

further provided that NorthWestern’s offered avoided energy cost of $28.68/MWh for a

25-year contract “reasonably reflects estimates of NorthWestern’s avoided energy costs

based on a methodology the Commission has applied in prior QF cases, and that offer

should be approved.”14 Staff concluded that under PURPA and Montana law a “QF should

   13
      The PSC staff also discussed the LEO and avoided capacity costs issues. Regarding the LEO
issue, the staff recommended that the PSC “initiate an informal rulemaking to receive input on
potentially adopting a new LEO rule” since FERC invalidated the Whitehall Wind standard in FLS
Energy. Regarding avoided capacity cost, staff recommended denying MTSUN’s request to
modify the capacity contribution calculations on the basis that the use of the SPP method was
“consistent with the SPP method adopted by the Commission in Order 7500c.” This is the same
method which this Court in Vote Solar, ¶ 64, concluded was arbitrary and unreasonable.
   14
       Staff also noted that in addition to not disputing the $28.68/MWh calculation, NorthWestern
also responded to a data request by the PSC during the proceeding that calculated a similar avoided
energy cost of $26.96/MWh.
                                                21
not lose the benefit of an agreement on certain contract elements simply by petitioning the

Commission to resolve other contract elements.”

The District Court’s Order Reversing the PSC’s Decision

¶39    MTSUN appealed the PSC’s Order on Reconsideration, Order No. 7535b, to the

Eighth Judicial District Court, Cascade County, for judicial review of the entirety of the

PSC’s Order on Reconsideration No. 7535b. On June 18, 2019, the District Court reversed

and remanded the PSC’s Order No. 7535b based on findings of violations of due process,

PURPA, and Montana’s mini-PURPA. In accordance with its authority to affirm, reverse,

remand, or modify a PSC determination under § 2-4-704(2), MCA, the District Court

granted the relief requested by MTSUN and remanded the case to the PSC with the

following specific instructions:

       (a) The Commission must assign MTSUN a 25-year contract length.
       (b) The Commission must assign MTSUN a price for carbon. The
           appropriate price is $9.65/MWh as calculated by the [PSC] staff for this
           proceeding.
       (c) MTSUN incurred a LEO as of December 23, 2016 and is entitled to the
           avoided cost of energy NorthWestern and MTSUN agreed upon directly
           prior to MTSUN’s filing of its petition with the Commission, which is
           $28.68/MWh.
       (d) The Commission must calculate an avoided cost of capacity for MTSUN
           based on an 18 MW internal combustion engine, as specified in
           NorthWestern’s 2015 IRP [Integrated Resource Plan].

¶40    The District Court’s decision was based on its determination that MTSUN’s right

to due process was violated, that a LEO had already been established, that the PSC

arbitrarily eliminated a carbon adder, the PSC arbitrarily relied on an AERO unit in

calculating avoided-capacity costs, and the PSC arbitrarily established 15-year contract

lengths.

                                            22
      Due Process Violations

¶41   The District Court first found that MTSUN’s right to due process was violated since

the PSC was not an impartial tribunal and that its decisions lacked “legal and evidentiary

support and can only be explained by bias and policy preference of the PSC members.”

During the District Court proceeding, MTSUN augmented the record to include three op-

eds criticizing solar QF development published by Commissioners Johnson, Koopman, and

O’Donnell while MTSUN’s case was pending and a “hot mic” recording of Commissioner

Lake recorded during a break in a PSC work session in the Vote Solar docket.

¶42   The court found that while the MTSUN proceeding was ongoing before the PSC’s

jurisdiction, four of the five individual Commissioners actively demonstrated personal

disdain for solar developers, concluding that the “published opinion articles criticizing

solar developers are evidence of bias on the part of the Commissioners.” This conclusion

was bolstered by evidence of Commissioner Lake’s “hot mic” recording discussing how a

10-year contract term and low avoided-cost rate would kill QF development in Montana

altogether and that “dropping the rate that much probably took care of the whole thing.”

¶43   In evaluating the actions by the Commissioners, the District Court concluded that

the PSC “improperly attempted to act as a quasi-legislative body by implementing new

policy rather than acting as an impartial trier of fact, a position the Commission’s legal

counsel acknowledged at hearing.”      Accordingly, the District Court concluded that

                                           23
MTSUN did not receive a fair hearing on its petition and its due process rights had been

violated.15

        Legally-Enforceable Obligation and Avoided Energy Costs

¶44     The District Court found that a LEO was established on December 23, 2016, at the

time MTSUN filed its petition with the PSC, and the PSC’s contrary finding was a violation

of PURPA as-applied to the MTSUN project. The court found that the record demonstrated

unrefuted evidence that NorthWestern and MTSUN were “virtually in agreement on the

avoided cost of energy (with NorthWestern’s number actually being slightly higher), and

that the only difference in price term was the result of not knowing how the Commission

would choose to value solar project capacity.” Accordingly, the court concluded that a

“correct application of PURPA would establish a LEO date for MTSUN as December 23,

2016, when MTSUN filed its petition with the Commission.” As a result of finding a LEO

existed, the District Court found that the correct price for the avoided energy cost rate was

$28.68/MWh, the price that NorthWestern submitted to MTSUN on November 30, 2016,

just before MTSUN filed its petition with the PSC and the parties were virtually in

agreement.

   15
       Additionally, the District Court found that the PSC’s reliance on Northwestern’s use of the
proprietary software, PowerSimm, in establishing avoided-cost calculations lacked transparency
and failed to satisfy due process requirements. The District Court held that the PSC must “require
all parties to have access to information it uses in making its final determinations of contested
issues.” The PSC has since issued Admin. R. M. 38.5.1910, which requires NorthWestern to
provide its avoided-cost modeling data to QFs. Accordingly, this issue is moot.
                                               24
       Carbon Adder

¶45    The District Court held the PSC was arbitrary and capricious in its decision to

eliminate the carbon pricing adder for the MTSUN project. The District court found that

such a decision departed from PSC precedent and that the PSC provided “no evidence that

the information it claims to have based its decision on was part of the record evidence.”

The District Court determined that “[b]ased on the lack of record evidence, Commission

precedent, and the applicable standard, MTSUN is entitled to a carbon adder of $9.65 per

MWh as recommended by staff based on the Commission precedent from the Crazy

Mountain Wind docket.”

       Avoided-Capacity Cost Calculation

¶46    The District Court held the PSC’s decision to rely on a least-cost AERO unit, rather

than an ICE unit, in calculating the avoided capacity costs, “was arbitrary and designed to

result in an artificially lower price.” The court found persuasive that capacity payments

must be based on the avoided costs of the next planned generation unit in NorthWestern’s

2015 IRP, which was an ICE unit, not an AERO unit. The District Court agreed with

MTSUN that while the “project does not provide exactly the same services as an ICE unit

[or an AERO unit] . . . the capacity payment will take into account these differences” since

MTSUN will only be paid avoided capacity costs when it is contributing capacity during

peak load hours, “and therefore the avoided cost only compensates MTSUN for the amount

that will be offset.” Accordingly, the District Court held that using an ICE unit was proper

since avoided cost must be based on current data as required by Whitehall Wind, LLC v.

                                            25
Mont. Pub. Serv. Comm’n, 2010 MT 2, ¶ 21, 355 Mont. 15, 223 P.3d 907 (Whitehall Wind

I).

       Contract Length

¶47    The District Court held that the PSC’s decision to limit the contract length to 15

years was clearly erroneous based on the lack of record evidence from the PSC proceeding.

The District Court found that MTSUN and NorthWestern did not dispute that 25 years was

an appropriate contract length for the project, and no testimony was provided in support of

a 15-year contract. The District Court agreed with MTSUN’s argument that the PSC’s

15-year contract limitation was “both arbitrary and contrary to Montana law requiring the

Commission to encourage long-term contracts ‘to enhance economic feasibility of’

qualifying facilities.” Section 69-3-604, MCA.

NorthWestern’s Motion to Stay the District Court’s Order

¶48    On July 15, 2019, NorthWestern filed a motion with this Court to stay the District

Court’s order. NorthWestern also had requested the District Court to stay its order, which

was denied. MTSUN opposed both motions. On August 6, 2019, this Court denied

NorthWestern’s motion, in part because MTSUN “allege[d] it would personally suffer

harm if the stay is granted,” and NorthWestern “acknowledged that it will not suffer

irreparable harm if the stay is denied.”

Order No. 7535c In Response to the District Court’s Decision

¶49    On July 17, 2019, the PSC issued Order No. 7535c to comply with the District

Court’s decision. In accordance with the District Court’s instructions, the PSC recalculated

                                            26
MTSUN’s avoided capacity costs based on an 18 MW ICE unit, NorthWestern’s next

planned generating unit, resulting in a capacity avoided cost of $14.07/MWh.

¶50     Since the PSC disagreed with the District Court’s decision, the PSC, in “protest” of

its compliance filing, directed NorthWestern to “include a contractual provision in any

MTSUN PPA which indicates the PPA is terminated or void if the June 18 District Court

Order is overturned or altered in any manner by the Montana Supreme Court on appeal.”16

The inclusion of that clause had the practical effect of circumventing this Court’s decision

to deny NorthWestern’s motion to stay the District Court’s order since the effect resulted

in MTSUN declining to engage in the PPA process. As MTSUN explained, “while

MTSUN may now technically enter into a contract, it is not a financeable contract because

it has no certainty until after this Court has acted,” resulting in MTSUN being in the same

position had either court issued a stay.

                                 STANDARDS OF REVIEW

¶51     The Montana Administrative Procedures Act (“MAPA”) standards of review

govern an administrative appeal of an agency decision in a contested case. Section

2-4-704, MCA; Whitehall Wind, LLC v. Mont. Pub. Serv. Comm’n, 2015 MT 119, ¶ 7, 379

Mont 119, 347 P.3d 1273 (Whitehall Wind II). This Court reviews an administrative

decision in a contested case to determine whether the agency’s findings of fact are clearly

   16
       During the PSC’s July 16, 2019 work session to discuss Order No. 7535c, the Commissioners
had a discussion to “protest” their compliance filing by including the opt out provision.
Commissioner Lake, in support of including the protest provision stated, “If we put that . . .
statement in . . . I think I can stay comfortable that we have followed the court, but we’ve also held
strong with our position.” Commissioner Koopman abstained from voting on the compliance
filing since he disagreed with the court’s order and believed the District Court judge was biased.
                                                 27
erroneous and whether its interpretation of law is correct. Whitehall Wind I, ¶ 15. A party

seeking judicial review of an agency decision is “entitled to have the court’s decision based

on a review of the complete administrative record.” Owens v. Mont. Dep’t of Revenue,

2006 MT 36, ¶ 14, 331 Mont. 166, 130 P.3d 1256; see also Clark Fork Coal. v. DEQ, 2008

MT 407, ¶ 21, 347 Mont. 197, 197 P.3d 482. The PSC’s decision must be judged on the

grounds and reasons set forth in the challenged order(s); no other grounds should be

considered. Montana-Dakota Utils. Co. v. Mont. Dep’t of Pub. Serv., 223 Mont. 191, 196,

725 P.2d 548, 551 (1986) (citing Burlington Truck Lines, Inc. v. U.S., 371 U.S. 156, 169,

83 S. Ct. 239, 246 (1962) (holding “if those grounds are inadequate or improper,” based

on the court’s review of the record, “the court is powerless to affirm the administrative

action”)).

¶52    The Court may reverse or modify an agency decision if the substantial rights of a

party have been prejudiced because the agency’s decision exceeds its statutory authority,

is affected by legal error, clearly erroneous in light of the whole record, arbitrary or

capricious, or characterized by an abuse of discretion. Section 2-4-704(2)(a), MCA;

see also § 69-3-402, MCA (providing that a party in interest dissatisfied with an order of

the PSC setting or fixing rates may proceed in the district court to vacate the order on the

grounds that it is unlawful or unreasonable). While agencies possess specific, technical,

and scientific knowledge exceeding that of this Court, an agency must articulate a

satisfactory explanation for its actions and provide a rational connection between the facts

found and the choice made. MEIC, ¶ 26; Clark Fork Coal., ¶¶ 27, 47; Montana-Dakota

Utils. Co., 223 Mont. at 196, 725 P.2d at 551. This Court will not defer to an agency’s

                                             28
incorrect or unlawful decisions but will only defer to an agency action within permissible

statutory bounds. MEIC, ¶ 22.

                                     DISCUSSION

¶53   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.

¶54   Appellants first argue that, irrespective of the legality of the Whitehall Wind LEO

test under PURPA, this Court lacks jurisdiction to review the PSC’s LEO decision since

MTSUN’s LEO complaint is an implementation challenge, not as-applied, and federal

courts have exclusive jurisdiction over PURPA implementation challenges.          Second,

NorthWestern argues that despite the unlawfulness of the PSC’s Whitehall Wind LEO test,

MTSUN did not incur a LEO.

      Jurisdictional Issue

¶55   The PSC and NorthWestern’s assertion that exclusive jurisdiction lies with federal

courts in PURPA implementation challenges is incorrect. The issue of jurisdiction over

implementation and as-applied challenges has long vexed utilities, QFs, state utility

commissions, and even FERC itself. Portland Gen. Elec. Co. v. FERC, 854 F.3d 692, 697

(2017). The line between the two challenges is muddled and inconsistently applied—as

evident by the PSC’s inconsistent advocacy in this case compared to Bear Gulch, as well

as other cases on this issue around the nation. E.g. Vote Solar v. City of Farmington, ___

F.Supp.3d ___, 2020 U.S. Dist. LEXIS 23425, *29-34 (D.N.M. Feb. 11, 2020) (providing

a thorough review of inconsistent court holdings on this issue to date). Here, the PSC

asserts that MTSUN’s challenge to its application of the Whitehall Wind LEO test is an

                                           29
implementation challenge; whereas, in the federal proceeding on this same issue, Bear

Gulch, the PSC argued the challenge to the Whitehall Wind test was an as-applied

challenge, thus barring the federal court from granting the plaintiffs in Bear Gulch their

requested relief. See Bear Gulch, 356 F. Supp. 3d at 1043, 1052.

¶56   Federal courts have held that state-based adjudication serves as the “mainstay” for

enforcing PURPA rights, particularly where a state-regulated power purchase agreement,

not a FERC-approved tariff, is at issue. Portland Gen. Elec., 854 F.3d at 698, 701-02;

see also FERC v. Mississippi, 456 U.S. 742, 761, 102 S. Ct. 2126, 2138 (1982) (holding

“federal rights granted by PURPA can appropriately be enforced through state adjudicatory

machinery”). Indeed, § 210(g) of PURPA provides for state judicial review respecting

“any proceeding conducted by a State regulatory authority” for purposes of “implementing

any requirement of a rule” under § 210(a) 16 U.S.C. § 824a-3(g)(1) (emphasis added);

see also Rainbow Ranch Wind, LLC, 139 FERC ¶ 61077, 61488 (Apr. 30, 2012) (holding

a “state’s implementation of PURPA and [FERC’s] rules implementing PURPA may be

challenged either through the state courts under section 210(g) of PURPA, or separately at

[FERC] under section 210(h) of PURPA, or both”); Policy Statement Regarding the

Commission’s Enforcement Role Under Section 210 of the Public Utility Regulatory

Policies Act of 1978, 23 FERC ¶ 61304, 61644-45 (May 31, 1983). Convincingly, § 210(g)

allows for judicial review in the “same manner, and under the same requirements,” as

judicial review may be obtained under 16 U.S.C. § 2633, of this title in the case of a

proceeding to which § 123 applies. Section 123(c) states:

                                           30
       Any person (including the Secretary) may bring an action to enforce the
       requirements of this chapter in the appropriate State court, except that no
       such action may be brought in a State court with respect to a utility which is
       a Federal agency. Such review or action in a State court shall be pursuant to
       any applicable State procedures.

16 U.S.C. § 2633(c). Reading these provisions harmoniously so as to give each provision

meaning and not to insert what has been omitted or to omit what has been inserted,

§ 1-4-101, MCA, it is clear that this Court has jurisdiction over MTSUN’s LEO challenge.

The statutes and the cases interpreting them certainly make it evident that state courts have

jurisdiction over a QF’s claim that a state agency improperly applied PURPA requirements

to that QF.

¶57    We find persuasive the recent holding and analysis in City of Farmington.

In City of Farmington, the court provided a thorough interpretation of how PURPA’s

judicial review sections, § 210(g) and (h) work together including the following excerpt:

       This Court interprets Section 210 [16 U.S.C. § 824a-3]to work like this: First,
       FERC issues a rule under Section 210(a).                  Second, a state
       PUC . . . implements that rule by incorporation into its procedures or
       regulations under Section 210(f). Then, an aggrieved party may challenge in
       state court whether or not that PUC[’s] . . . actions comply with FERC’s
       requirements under Section 210(g). If a PUC . . . outright fails to implement
       a FERC rule, FERC (or a petitioning party on FERC’s behalf) may step in
       and force them [to] do so under Section 210(h), either through FERC
       administrative proceedings or in federal district court. This reading moves
       away from the “application” and “implementation” debate and focuses on
       distinguishing compliance with FERC rules versus compliance with
       PURPA’s mandate to make reasonable implementation efforts. Federal
       jurisdiction under Section 210(h) should not be stretched to cover disputes
       over how well a regulatory entity implements FERC’s rules or the propriety
       of that entity’s state or local rules.

                                             31
City of Farmington, *22 (emphasis in original). Accordingly, the court held, “PURPA thus

leaves post-implementation disputes in the hands of state courts” and provided that state

jurisdiction would be proper where “a state PUC approved a utility’s proposed rate that

discriminates against renewable generators in violation of FERC’s mandates.” City of

Farmington, *23. We agree.17

        Lawfulness of the PSC’s Whitehall Wind LEO Test

¶58     The PSC’s Whitehall Wind LEO test is inconsistent with PURPA and FERC’s

regulations.18 Prong one of the test requires that a QF “tender a PPA to the utility with a

price term consistent with the utility’s avoided cost.” Order No. 7535a, ¶ 35. The PSC

asserts that prong one does not represent an insurmountable principle preventing QFs from

ever being able to obtain a LEO but is a matter of timing. Order No. 7535b, ¶ 19. Based

on this assertion, the PSC decided that MTSUN did not incur a LEO since NorthWestern

gave MTSUN several avoided-cost calculations throughout the year and a half of

negotiations and MTSUN did not accept NorthWestern’s proposed avoided capacity cost

rates. Order No. 7535b, ¶ 18.

¶59     While FERC “gives deference to the states to determine the date on which a [LEO]

is incurred, such deference is subject to the terms of [FERC’s] regulations.” Cedar Creek

Wind, LLC, 137 FERC at 61023.               Where a state utility commission “limits the

   17
      This decision is limited to clarifying state court jurisdiction over PURPA disputes and does
not purport to limit FERC’s jurisdiction over these matters.
   18
     The PSC has since amended its LEO test and dropped the second prong of the Whitehall
Wind LEO test, consistent with FERC’s order in FLS Energy. See Admin. R. M. 38.5.1909.
                                               32
methods . . . to only a fully-executed contract, the state’s limitation is inconsistent with

PURPA, and [FERC’s] regulations implementing PURPA.” Cedar Creek Wind, LLC, 137

FERC at 61024. Specifically, where a state utility commission narrowly defines a LEO

“to encompass only a specific legal arrangement with all the relevant and material rates,

terms and conditions,” it is at odds with PURPA.            New PURPA Section 210(m)

Regulations, 71 Fed. Reg. at 64368.

¶60    As noted, FERC interprets a LEO as being broader than simply a contract between

a utility and a QF and that 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 (emphasis added); FLS Energy, 157 FERC at 61731. Moreover, FERC

has found that extensive negotiations between parties are persuasive and point to the

reasonable conclusion that a QF commits itself to sell electricity to the utility. Cedar Creek

Wind, 137 FERC at 61025 n. 73 (concluding that the Idaho PUC’s “rejection of the contract

entered into by [the utility and QF], on the ground that the avoided-cost rate contained in

the contract is excessive” was inconsistent with PURPA and FERC’s regulations regarding

LEO formation). Importantly, as noted above, “the establishment of a legally-enforceable

obligation turns on the QF’s commitment, and not the utility’s actions.” FLS Energy, Inc.,

157 FERC at 61730-31 (emphasis in original).

¶61    Relevant to our decision here, is this Court’s decision in Whitehall Wind II. There

we held that the PSC “did not exceed its statutory authority in concluding that evidence of

a utility’s refusal to negotiate, without more, is insufficient to establish that a [QF] has

                                             33
committed itself to the proposed project.”19 Whitehall Wind II, ¶ 17 (emphasis added).

In Whitehall Wind II, this Court reasoned that a LEO was not established since the QF did

not take action that exposed it to liability if it abandoned the proposed project, including

conducting avian studies, obtaining required permits, or having actual site control over any

of the proposed project areas. Whitehall Wind II, ¶ 17.

¶62     The PSC applied prong one of the Whitehall Wind LEO test, prescribed at

Admin. R. M. 38.5.1909(1)(a)(ii), to unlawfully turn on NorthWestern’s actions contrary

to FERC’s holding in FLS Energy and allows NorthWestern to delay or refuse to sign a

contract with a QF so that a later and lower avoided cost is applicable, contrary to FERC’s

holding in FLS Energy. FLS Energy, 157 FERC at 61731.

¶63     As demonstrated here, prong one thus allowed NorthWestern to delay the signing

of a contract so that it would receive a lower avoided cost from the PSC. MTSUN and

NorthWestern were engaged in negotiations for over a year and a half prior to MTSUN

filing its petition with the PSC. For six months NorthWestern failed to even respond to

MTSUN’s negotiation attempts. MTSUN was forced to file two complaints, one that

NorthWestern’s refusal to respond was creating a barrier to market entrance of its QF

contrary to PURPA’s intent, and the other that NorthWestern was unlawfully requesting

information to delay forecast of avoided-cost information and negotiations.              After

NorthWestern did respond with avoided-cost calculations, it proceeded to send several

varied and inconsistent proposals and suggested that negotiations would have to be delayed

   19
        In Whitehall Wind II, while the PSC had just announced the Whitehall Wind LEO test that
is at issue here, we declined to opine whether it complied with PURPA. Whitehall Wind II, ¶ 18.
                                              34
until the PSC issued Order No. 7436d. Also, it took the position that it would not sign a

PPA until MTSUN submitted a copy of its signed interconnection agreement and studies

regarding interconnection estimates. MTSUN argued those demands were contrary to

PURPA’s requirements, as held by FERC in FLS Energy, 157 FERC at 61731. Even after

a year and a half of negotiations, multiple complaints to the PSC, and the petition process,

the PSC held that MTSUN did not sufficiently commit itself to the development of its

project since it did not accept NorthWestern’s proposed avoided-cost rates and, and

therefore, no LEO existed.

¶64    If the QF and the utility are totally in agreement on the avoided-cost calculations

there would be little to no reason that a QF would petition the PSC pursuant to § 69-3-603,

MCA, to determine the rates of a PPA since at that point a contract with the utility would

be inevitable. Prong one of the PSC’s LEO test, as applied here, requires that the QF and

the utility must be in complete agreement on avoided costs prior to incurring a LEO. Such

a requirement exceeds the bounds of PURPA and FERC’s regulations regarding when a

QF incurs a LEO since it essentially limits a QF’s establishment of a LEO to a specific

legal arrangement with all the relevant and material rates, terms, and conditions. New

PURPA Section 210(m) Regulations, 71 Fed. Reg. at 64368. While the PSC stated that

MTSUN was “not required to predict the precise avoided cost,” Order No. 7535a, ¶ 36, its

actions here say otherwise. MTSUN’s and NorthWestern’s avoided energy costs inclusive

of carbon were less than a dollar of a difference with NorthWestern’s proposed price of

$40.86/MWh and MTSUN’s at $40.18/MWh, yet the PSC determined these prices were

not consistent and altered the avoided energy costs.

                                            35
¶65     Clearly, MTSUN’s difficult and drawn out negotiations with NorthWestern and its

eventual petition to the PSC, sufficiently demonstrated its commitment to the development

of its proposed project to establish a LEO. Cedar Creek Wind, 137 FERC at 61025.

MTSUN also had actual site control over its proposed project areas, had conducted much

of the necessary permitting, had submitted interconnection requests,20 and initiated

feasibility studies for interconnection. MTSUN had two land holdings, one with a private

landowner and the other with the Montana DNRC. The first land holding had a fully

executed and recorded lease that was in place for up to 30 years from the date the project

achieved its commercial operations date. The agreement with DNRC was also fully

negotiated and approved by the Montana Board of Land Commissioners for a period of up

to 45 years. Additionally, MTSUN completed an environmental site assessment in May

2016, submitted its FERC form 556, obtained a right-of-way permit from Yellowstone

County, was undergoing the Yellowstone County zoning compliance permitting process,

and had scheduled its certificate of occupancy construction permit as well as other permits

required upon receiving its construction permit. Certainly, unlike the QF in Whitehall Wind

II, that relied on NorthWestern’s refusal to negotiate “without more,” MTSUN has done

everything to create an obligation and has sufficiently committed itself to warrant the

establishment of a LEO. Whitehall Wind II, ¶ 17.

¶66     Accordingly, we conclude that as applied to MTSUN’s petition, the PSC’s

Whitehall Wind LEO test is unlawful under PURPA, FERC regulations, and Montana’s

   20
      On November 4, 2016, NorthWestern had accepted an interconnection request from MTSUN
for the project to interconnect. See Order No. 7535a, ¶ 81.
                                            36
mini-PURPA, § 69-3-603, MCA. To the extent the PSC still relies on or construes prong

one in its current LEO test under Admin. R. M. 38.5.1909(1)(a)(ii), to require that a LEO

is not established unless and until a QF and the utility reach an agreement on a avoided-cost

figure, we direct the PSC to initiate rulemaking of a new LEO test consistent with this

Opinion.

¶67     The District Court did not err in its decision concluding that the PSC’s LEO

determination was unlawful as a violation of PURPA as-applied to MTSUN. Accordingly,

the District Court also did not err in finding that MTSUN established a LEO on the date of

its petition to the PSC, December 23, 2016. A QF is entitled to its avoided-cost calculation

“at the time the obligation is incurred.” 18 C.F.R. § 292.304(d)(2)(ii). At the time MTSUN

incurred its LEO, MTSUN and NorthWestern were virtually in agreement on the avoided

cost of energy with a carbon adder for a 25-year term. The District Court correctly

determined that MTSUN is entitled to the agreed-upon rate for energy of $28.68/MWh, a

carbon adder of $9.65/MWh,21 and a contract term of 25 years.22

¶68     Additionally, the PSC’s decision to base MTSUN’s avoided-cost calculation on

March 2017 forward prices, rather than the information available to the parties at the time

   21
      This is the same carbon adder figure calculated in the Crazy Mountain Wind docket that was
decided at the time of MTSUN’s petition to the PSC on December 22, 2016. See Order No. 7505b,
¶ 65. PSC staff had also recommended this same figure in its staff memo, and NorthWestern,
during PSC proceedings, testified in agreement with this figure.
   22
       We acknowledge that adding $28.68 and $9.65 does not amount to NorthWestern’s
November 30, 2016 figure of $40.86/MWh; however, the record is clear that NorthWestern’s
avoided energy cost amounted to $28.68/MWh at the time of MTSUN establishing its LEO and
that the PSC, one day before MTSUN filed its petition, had determined that $9.65/MWh was a
proper carbon adder figure.
                                              37
MTSUN incurred its LEO in December 2016, is contrary to law.                     18 C.F.R.

§ 292.304(d)(2)(ii) clearly requires that the data used to calculate the avoided costs must

be based on current data at the time the LEO is established.

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

¶70    Having determined MTSUN incurred a LEO on the date of its petition to the PSC,

December 23, 2016, it is necessary to determine whether the PSC’s decision to upend the

agreed-upon terms of MTSUN’s LEO was in excess of its authority.                     Section

2-4-704(2)(a)(ii), MCA.     Administrative agencies have only the powers specifically

conferred upon them by the legislature. Bell v. Dept. of Licensing, 182 Mont. 21, 22, 594

P.2d 331, 332 (1979). Under PURPA, a “state commission may comply with the statutory

requirements by issuing regulations, by resolving disputes on a case-by-case basis, or by

taking other actions reasonably designed to give effect to [FERC’s] rules.” Mississippi,

456 U.S. at 751, 102 S. Ct. at 2133. Montana’s mini-PURPA specifically provides that

“nothing in this chapter shall be construed as vesting judicial powers on said

commission[.]” Section 69-3-103(1), MCA.

¶71    Clearly FERC has interpreted PURPA to encourage parties to enter into binding

contracts themselves for the development of renewable energy resources. FERC has held

that a state utility commission must not “create practical disincentives to amicable contract

formation” between a QF and a utility. Hydrodynamics, Inc., 146 FERC ¶ 61193, 61845

(Mar. 20, 2014). 18 C.F.R. § 292.301(b)(1) permits a QF and an electric utility to “agree

to a rate for any purchase, or terms or conditions relating to any purchase” that may differ

                                             38
from those that would otherwise be required by FERC’s or a state utility commission’s

regulations concerning the determination of avoided-cost rates. In promulgating 18 C.F.R.

§ 292.301(b)(1), FERC reasoned that “a contracted-for-rate would never exceed true

avoided costs and would thus be consistent with PURPA.” Order No. 69, 45 Fed. Reg.

12,214, 12217-18; Cedar Creek Wind, 137 FERC at 61025.                     Further, 18 C.F.R.

§ 292.301(b)(2) provides that FERC’s avoided-cost regulations, and the PSC’s

implementation of those regulations, do not affect the “validity of any contract entered into

between a [QF] and an electric utility for any purchase.” 18 C.F.R. § 292.301(b)(2);

see Cedar Creek Wind, 137 FERC at 61025 n. 73 (finding that the Idaho PUC’s alteration

of contract terms that the QF and utility had agreed to prior to the proceeding was

inconsistent   with    PURPA       and    FERC’s     regulations    implementing      PURPA);

see also Rainbow Ranch Wind, LLC, 139 FERC at 61487. Specifically, in discussing the

effect of 18 C.F.R. § 292.301, FERC explained that “the ability of [QFs] to negotiate with

an electric utility is buttressed by the existence of the rights and protections of these rules.”

Order No. 69, 45 Fed. Reg. at 12217 (emphasis added).

¶72    The PSC’s actions in this case are contrary to federal and state law, FERC

regulations, and FERC precedent. Regardless of undergoing a lengthy negotiation process

and incurring liability, as discussed above, the PSC rejected the agreed-upon terms of the

parties upon the filing of MTSUN’s petition and proceeded to alter terms that were not

disputed by MTSUN or NorthWestern. The PSC’s procedure is contrary to the principle

that state regulators must not create practical disincentives to amicable contract formation

and is the opposite of buttressing MTSUN’s right to negotiate agreements with

                                               39
NorthWestern. There would be no point to a QF negotiating terms with a utility, if, upon

petition to a state PSC to adjudicate any disputed terms of a PPA, the terms that were agreed

upon between the parties would be altered simply because the PSC decides a different term

would be better. Clearly, in reviewing the regulations and FERC precedent, as well as

taking into account general principles of contract law, a QF should not lose the benefit of

agreement on certain contract elements upon petitioning the PSC to resolve disputed

elements. See Cedar Creek Wind, 137 FERC at 61025 n. 73; Hydrodynamics, Inc., 146

FERC at 61845.23 A fundamental tenet of modern contract law is that the law presumes

parties forming a contract “are in the best position to make decisions in their own interest”

and a court should not upend mutually agreed terms. Arrowhead Sch. Dist. No. 75 v. Kylap,

2003 MT 294, ¶ 20, 318 Mont. 103, 79 P.3d 250; Marco & Co. v. Deaconess/Billings Clinic

Health Sys., 1998 MT 26, ¶ 16, 287 Mont. 293, 954 P.2d 1116 (holding a “court must not

create a contract for the parties different from that actually entered into by them, unless the

contract is a violation of public policy”).

¶73     Furthermore, Montana law governing quasi-judicial procedure prohibits the PSC’s

action. In acting in a “quasi-judicial function” while adjudicating § 69-3-603, MCA,

petitions, the PSC’s review is limited to “making determinations in controversies.”

   23
       PSC staff also discussed FERC’s precedent that the PSC must not create practical
disincentives to contract formation and noted 18 C.F.R. § 292.304(e)(2)(iii)’s requirement that in
adjudicating MTSUN’s petition, the PSC must consider “the terms of any contract or other legally-
enforceable obligation” and “defer principally to docket evidence.” PSC staff noted that record
evidence did not support the PSC’s decision to alter the contract length and the avoided energy
costs since MTSUN and NorthWestern were in agreement on those issues. Staff concluded that
“as occurred here, it is possible that mutual agreement, or near agreement, might be achieved with
respect to one or more elements of a contract”; a QF should not “lose the benefit of an agreement
on certain contract elements” upon petition to the PSC.
                                               40
Section 2-15-102(10), MCA (emphasis added). The PSC’s review must be narrowed to

only those controversies and issues that are disputed by the parties, not those issues on

which the parties have reached mutual agreement. See § 69-3-603, MCA (allowing for a

QF to petition when it and the utility are “unable to mutually agree”). The PSC has not

been specifically conferred sua sponte authority allowing it to adjudicate undisputed

issues.24 Indeed, § 69-3-103, MCA, specifically provides that “nothing in this chapter shall

be construed as vesting judicial powers on said commission.” At the time that MTSUN

established its LEO, the parties had reached mutual agreement on avoided energy costs

with a carbon adder and a contract term of 25 years. Accordingly, these undisputed issues

were not “controversies” and the PSC lacked authority to re-write them.

¶74     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.

¶75     MTSUN argues that the PSC’s choice to rely on an AERO unit was a violation of

PURPA since NorthWestern’s next planned generation unit to help meet its capacity deficit

of 28% was three 18 MW internal combustion engine (“ICE”) units scheduled to come

online in 2019. MTSUN asserts that in relying on the AERO unit, the PSC arbitrarily

assumed capacity would not be needed until 2025, even though NorthWestern had a 28%

capacity deficit at the time of Order No. 7535b. The PSC asserts that its decision to rely

   24
       Regardless, sua sponte authority is a power that is to be used “sparingly.” See City of
Bozeman v. McCarthy, 2019 MT 209, ¶ 32, 397 Mont. 134, 447 P.3d 1048; see also Ekimian v.
Immigration & Naturalization Serv., 303 F.3d 1153, 1156-57, 1161 (9th Cir. 2002) (discussing
that even where an agency is specifically conferred sua sponte authority, sua sponte authority must
be used sparingly as an “extraordinary remedy reserved for truly exceptional situations”).
                                                41
on the AERO unit was reasonable and supported by substantial evidence since MTSUN’s

solar project cannot perform the same functions as NorthWestern’s planned 2019 ICE

units.

¶76      There is no question that in setting purchase rates, the PSC must set the rate at the

utility’s “full avoided costs,” meaning the rate to be paid by a utility for power is to be

based on the utility’s actual avoided costs at the time an obligation is incurred. Am. Paper

Inst. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 416, 103 S. Ct. 1921, 1930 (1983);

Indep. Energy Producers Ass’n v. Cal. Pub. Utils. Comm’n, 36 F.3d 848, 852, 858 (9th

Cir. 1994); see also Cal. PUC, 133 FERC ¶ 61059, 61268 (Oct. 21, 2010); Snow Mt. Pine

Co. v. Mauldin, 84 Or. App. 590, 600-01, 734 P.2d 1366, 1371 (1987). FERC has stated

that “if a purchase from a [QF] permits the utility to avoid the addition of new capacity,

then the avoided cost of the new capacity and not the average embedded system cost of

capital should be used.” FERC Order No. 69, 45 Fed. Reg. at 12,216. New capacity of a

utility is based on the utility’s “schedule for the addition of new generating and

transmission facilities,” meaning those resources planned for development contained in

NorthWestern’s integrated resource plan. FERC Order No. 69, 45 Fed. Reg. at 12,216; see

also Whitehall Wind I, ¶ 27 (citing Admin. R. M. 38.5.1905 and holding the PSC must rely

on current data in NorthWestern’s integrated resource plan in calculating avoided costs).

Indeed, FERC has specifically stated that “our regulations thus provide state commissions

with guidelines on factors to be taken into account, ‘to the extent practicable,’ in

determining a utility's avoided cost of acquiring the next unit of generation.” Cal. PUC,

133 FERC at 61266 (emphasis added). Similarly, this Court has held that avoided costs

                                              42
“must be reasonable and based on current avoided least cost resource data.” Whitehall

Wind I, ¶ 21 (citing Indep. Energy Producers Ass’n, 36 F.3d at 851-52; 18 C.F.R.

§ 292.304; § 69-3-604, MCA) (emphasis added).

¶77    As recognized by the PSC, the 2025 AERO unit is not a preferred resource in

NorthWestern’s 2015 plan, nor is it NorthWestern’s next unit of generation. Order No.

7535a, ¶ 72. The PSC’s decision to calculate avoided capacity cost data based on an AERO

unit that is not NorthWestern’s preferred next unit of generation results in the PSC failing

to rely on NorthWestern’s actual and full avoided costs contrary to PURPA, FERC

regulations and precedent, and this Court’s precedent. Avoided-cost calculations must be

based on NorthWestern’s next planned unit of generation. Cal. PUC, 133 FERC at 61266.

Accordingly, the PSC acted unlawfully in relying on the 2025 AERO unit as a proxy for

avoided capacity costs, instead of the new capacity provided by NorthWestern’s next

planned units of generation—the three ICE units planned for 2019.

¶78    Moreover, whether a QF can perform exactly the same services of a utility’s next

planned generation unit is not a factor that PURPA requires consideration of in determining

avoided costs. See 18 C.F.R. 292.304(e). The differences in performance are taken into

account in the avoided capacity cost payments since MTSUN is only compensated for

avoided capacity costs when it is contributing capacity during NorthWestern’s peak load

hours. See Order No. 7535a, ¶ 76 (discussing the PSC’s methodology and that the

                                            43
calculation of avoided capacity costs is based on MTSUN’s projected electricity production

during peak load hours); Order No. 7535c, ¶ 6.25

¶79     The District Court did not err in determining that the PSC acted arbitrarily and

capriciously in calculating MTSUN’s avoided capacity cost rates. Consistent with the

District Court’s instructions on remand, the PSC issued its compliance order, Order No.

7535c, calculating an avoided capacity cost rate of $14.07/MWh that was based on

NorthWestern’s next planned unit, the preferred 2019 ICE units. MTSUN is entitled to

that rate and remand on this issue is not necessary.26

                                       CONCLUSION

¶80     It is indisputable that the PSC’s methodologies chosen combined with the reduced

contract length had the effect of discouraging development of MTSUN’s QF project, which

is contrary to PURPA. In reviewing the record and considering each component of the

PSC’s orders, it is clear that at nearly every step of setting the terms of MTSUN’s PPA the

PSC chose arbitrary and unlawful methodologies that resulted in deflating the economic

feasibility of MTSUN’s project.

   25
      As in Vote Solar, the PSC relied on an improper interpretation of the SPP methodology in
calculating MTSUN’s avoided capacity costs. NorthWestern calculated that MTSUN’s project
would contribute 0% capacity, but the PSC “imputed” the calculation from the Vote Solar docket
of 6.1%. Order No. 7535b, ¶ 99. MTSUN had objected to the PSC’s interpretation of the SPP
methodology during the proceedings but did not raise this issue on appeal to this Court.
   26
       While the PSC acknowledges that “[w]ithout question the Commissioners remarks exhibited
bias” against solar QF developers, we decline to reach the issue of whether the PSC violated
MTSUN’s due process rights by making decisions based on bias and policy preferences since we
are affirming the District Court on the merits and the PSC has already issued its compliance order
in this case.
                                               44
¶81    For the reasons stated, the District Court did not err in concluding that the PSC’s

determinations were arbitrary and unlawful. The Court may reverse or modify an agency

decision if the substantial rights of a party have been prejudiced because the agency

decision violates constitutional or statutory provisions, is made upon unlawful procedure,

is affected by other error of law, clearly erroneous in view of the substantial evidence on

the whole record, arbitrary or capricious, or characterized by an abuse of discretion.

Section 2-4-704(2)(a), MCA. The District Court relied on record evidence in determining

the existence of a legally-enforceable agreement and the avoided-cost rates. It did not

engage in impermissible rate setting. Accordingly, the District Court’s decision is affirmed

and MTSUN is entitled to the rates and contract terms set forth in this Opinion.

                                                 /S/ MIKE McGRATH

We Concur:

/S/ JAMES JEREMIAH SHEA
/S/ INGRID GUSTAFSON
/S/ DIRK M. SANDEFUR
/S/ BETH BAKER

Justice Jim Rice, concurring.

¶82    While the specific legal issues decided here are different than those in Vote Solar,

there is significant substantive overlap in the respective records of the two cases that

require that I join the ultimate outcome reached by the Court here as a matter of stare

decisis. Important determinations by the PSC in this case were made by incorporating the

findings and analyses it had employed in Vote Solar. The Court’s rejection of the entirety

                                            45
of the PSC’s decision in Vote Solar—including its factfinding, methodology, analysis and

reasoning, and the breadth of the Court’s opinion in Vote Solar—leave little room for a

fresh review of the issues raised here, and none for a different conclusion, despite what I

believe to be analytical error in this case.

¶83    Regarding the arguments by the PSC and Northwestern that the Court is without

jurisdiction to entertain MTSUN’s challenge to the PSC’s LEO determination, based upon

the argument that the Whitehall Wind test violates PURPA, I acknowledge the difficulty

courts have encountered in applying PURPA’s assignment of matters between state and

federal jurisdiction. Opinion, ¶ 55. However, I believe the recent attempt to articulate a

bright-line rule by the court in City of Farmington, upon which the Court relies, is

oversimplistic in light of federal precedent, and incorrect.     Opinion, ¶ 57.    City of

Farmington’s framework limits federal jurisdiction under Section 210(h) to the narrow

circumstance when a state commission “outright fails to implement a FERC rule,” for

which FERC, or a private party in absence of FERC action, “may step in and force [the

commission] to do so.” City of Farmington, *22. Then, City of Farmington holds that

state courts are broadly authorized to entertain all other challenges regarding whether a

commission’s “actions comply with FERC’s requirements under Section 210(g).” City of

Farmington, *22. While federal jurisdiction is certainly circumscribed under PURPA, I

do not believe it is so severely narrowed to apply only to cases where a state commission

has “outright fail[ed]” to adopt a FERC rule or requirement.

¶84    As explained in a leading case:

                                               46
       Cases interpreting the jurisdictional grant in § 210(h) of PURPA have
       distinguished between claims challenging the implementation of FERC/state
       agency regulations and claims challenging the application of such
       regulations. E.g., Indus. Cogenerators v. FERC, 310 U.S. App. D.C. 357,
       47 F.3d 1231 (D.C. Cir. 1995); Greensboro Lumber Co. v. Georgia Power
       Co., 643 F. Supp. 1345 (N.D. Ga. 1986), aff’d 844 F.2d 1538 (11th Cir.
       1988).    As explained in Greensboro Lumber, “In general, section
       210(h)(2)(B) of PURPA limits federal court jurisdiction to claims that [state
       agencies] . . . have failed to comply with their obligation under § 210(f)(2) of
       PURPA to devise an implementation plan. . . . that is consistent on its face
       with FERC’s regulations.” Greensboro Lumber, 643 F. Supp. at 1374.

Massachusetts Inst. of Tech. v. Massachusetts Dep’t of Pub. Utils., 941 F. Supp. 233,

236-37 (D. Mass. 1996) (emphasis added). Thus, federal jurisdiction extends to claims

that a state commission’s rule or plan facially fails to implement the requirements of FERC.

As explained in Great Divide Wind Farm 2 LLC v. Aguilar, 405 F. Supp. 3d 1071, 1092

(D.N.M. 2019), “[t]he category of as-implemented challenges includes more than

contentions that a state agency has not acted to implement PURPA and the FERC

regulations; a party may contend in an as-implemented claim that a state’s actions to

implement the laws violate PURPA and the FERC regulations.” Great Divide Wind Farm,

405 F. Supp. at 1092 (emphasis added). Indeed, the merits of a similar challenge to the

one raised here by MTSUN—whether the PSC’s Whitehall Wind LEO standard violates

PURPA—has been ruled upon as an “implementation” challenge in federal court, although

                                             47
that ruling was reversed on mootness grounds by the Ninth Circuit. See Bear Gulch Solar,

LLC v. Mont. Pub. Serv. Comm’n, 356 F. Supp. 3d 1041 (D. Mont. 2018).1

¶85    In contrast, “matters of application of [a utility’s] rules . . . are properly brought

before state judicial forums.” Greensboro Lumber, 643 F. Supp. at 1374 (citation omitted).

In Greensboro Lumber, plaintiff alleged that it was not provided with “back-up and

maintenance power at non-discriminatory, just and reasonable rates.” Greensboro Lumber,

643 F. Supp. at 1374. The federal district court held it “lack[ed] subject matter jurisdiction

over these ‘as-applied’ claims[,]” citing a FERC ruling that “‘complaints regarding an

alleged refusal to purchase power from a qualifying facility and the rates for such purchases

are matters properly brought in a State forum.’” Greensboro Lumber, at 1374 (citing Snow

Mountain Pine Co. v. CP National Corp., FERC Docket No. EL84-25-000).

¶86    Under this precedent, I believe the PSC and Northwestern correctly argue that

MTSUN’s challenge as stated before the District Court was improperly brought in state

courts. MTSUN essentially acknowledged that it had failed to satisfy the Whitehall Wind

LEO test, but asserted that the test “is unlawful in that it does not properly encourage small

1
  The Court correctly notes, Opinion, ¶ 55, that the PSC initially argued in Bear Gulch that this
issue was inappropriately pursued in federal jurisdiction, but the PSC ultimately conceded the
point, and the U.S. District Court reached the merits. See Bear Gulch Solar, LLC v. Mont. Pub.
Serv. Comm’n, 2018 U.S. Dist. LEXIS 94542 (D. Mont.), and Bear Gulch Solar, 356 F. Supp. 3d
at 1049 (“Plaintiffs allege that [PSC] Order 7500 (and subsequent Orders 7500a-d) are inconsistent
with and violate Plaintiffs’ rights as QFs under PURPA and FERC’s regulations. . . . [T]he [PSC]
acknowledged during oral argument that the Court has jurisdiction to decide whether the Whitehall
Wind standard complies with PURPA.”). The PSC has since adopted a new test that substantially
revised and expanded the Whitehall Wind test, see ARM 38.5.1909, and, thus, the Court’s order
for the PSC to “initiate rulemaking of a new LEO test consistent with this Opinion,” Opinion, ¶ 66,
is unnecessary, and should be withheld pending review of the revised test.

                                                48
renewable projects as the Commission is mandated to do under PURPA.” The federal

precedent strongly suggests this is a challenge to the PSC’s implementation plan, subject

exclusively to federal jurisdiction. Consequently, I believe the entire section of the Court’s

opinion following its jurisdictional analysis, under the heading “Lawfulness of the PSC’s

Whitehall Wind LEO Test” and determining the PSC’s Whitehall Wind standard “is

inconsistent with PURPA and FERC’s regulations,” Opinion, ¶¶ 58, 66, is in excess of the

jurisdiction permitted this Court under PURPA, despite the footnote disclaimer that the

ruling “does not purport to limit FERC’s jurisdiction over these matters.” Opinion, ¶ 57,

n.17.

¶87     Consequently, if this were a matter of first impression, I would reject the greater

part of MTSUN’s challenge as improperly raised in state court and affirm the PSC’s

determination that a LEO was not established. However, the extent of overlap between

this case and Vote Solar eliminates any notion of first impression. Under the breadth of

the Vote Solar decision and the application of stare decisis, I am compelled to reach the

same ultimate conclusion as the Court, even after disregarding the arguments offered by

MTSUN that are beyond our jurisdiction.

¶88     The PSC rejected MTSUN’s assertion of a LEO under application of the first prong

of the Whitehall Wind test, specifically, that the terms offered by MTSUN were not

“consistent” with Northwestern’s avoided costs, given MTSUN’s dramatically higher

calculation of avoided capacity. In negotiations, Northwestern’s calculations of avoided

capacity were about $5/MWh, while MTSUN’s were approximately four times as much at

about $20/MWh, with calculations becoming increasingly divergent when the parties were

                                             49
before the PSC. However, the PSC’s calculation of avoided capacity here—the central

finding of the dispute—has already been overturned and replaced with a calculation by the

courts, by the rejection of the capacity methodology employed by the PSC in Vote Solar.

The Court here holds that “[a]s in Vote Solar, the PSC relied on an improper interpretation

of the SPP methodology in calculating MTSUN’s avoided capacity costs.” Opinion, ¶ 78,

n.25. While there are aspects of the dispute here that are unique, such as the use of an

AERO unit as a proxy resource versus ICE units, they do not alter the greater holding

invalidating the methodology as applied by the PSC. Regarding the carbon adder, the PSC

based its determination here upon the same findings it had entered in Vote Solar, which has

been overturned as error. See Opinion, ¶¶ 30-31. While I continue to question the carbon

adder’s vague origins and its propriety in proceedings where consumer indifference is

paramount based on the authorities cited in my Vote Solar dissent, and believe it remains

highly discretionary on the part of the Commission, the issue is settled and the adder

imposed by the courts. Regarding contract length, the PSC again relied on evidence it had

credited in Vote Solar, but which was there rejected by the Court. Opinion, ¶¶ 34-35.

Further, in my review, the concessions made in Vote Solar’s testimony regarding the

viability of the 15-year contract were greater than MTSUN’s testimony here, and while I

would conclude there was an appropriate basis for the PSC’s contract length determination,

that issue has already been adversely determined by the Court, and on a record I believe

was stronger than here.

¶89   As I expressed in Vote Solar, I remained concerned that the courts have imposed

rates contrary to proper application of the standards of review, and inappropriately

                                            50
bolstered staff recommendations. Nonetheless, as a result of the above holdings, and upon

application of stare decisis, the PSC’s determination to alter the terms of the proposed

PPA, and to conclude the PPA offered by MTSUN was not “consistent” with

Northwestern’s avoided costs under the first prong of the Whitehall Wind test, cannot be

supported even upon an inquiry properly conducted by state courts under PURPA. For the

reasons I set forth in Vote Solar, I believe the unfortunate consequence of this decision will

likewise be to significantly increase the costs for provision of power that will ultimately

become the burden of ratepayers, in excess of, and therefore in violation of, the intention

of Congress under PURPA.

¶90    I concur.

                                                  /S/ JIM RICE

Justice Laurie McKinnon joins in the concurring Opinion of Justice Rice.

                                                  /S/ LAURIE McKINNON

                                             51