Solar advocates have sued Montana's Public Service Commission for allegedly undercutting renewable energy development.
The plaintiffs —Cypress Creek Renewables, Vote Solar and the Montana Environmental Information Center — contend that Montana's five-member regulator of utilities has “drastically and unreasonably” slashed payments to small renewable energy projects.
Rates were cut from $66 per megawatt hour to $31. The affected projects, whose goal was to provide renewable energy to the 340,000 customers of NorthWestern Energy, have decreased in number from nearly 100 in May 2016, to roughly a dozen.
The PSC-set price paid to small qualifying facilities for energy has been cut in half since May 2016. Those projects generate 3 megawatts of power or less. The largest solar project affected might generate enough power for about 540 homes.
"The commission's decision is a death knell for small solar development in Montana," the plaintiffs said in their lawsuit.
And, the decision comes "at a time when demand for renewable energy is growing, the cost of producing renewable energy is at an all-time low, and NorthWestern has claimed a significant need for electric capacity that solar and wind developers are well positioned to supply."
In addition to lowering the prices paid to small qualifying facilities, commissioners have shortened contract lengths for all power purchase agreements from 25 years to 15. The shorter contracts apply to projects not only by renewable energy companies, but also NorthWestern's own developments. Both the utility and the developers have called the terms unreasonable, contending that price assurance for such short terms make financing impossible.
In shortening contracts, the all-Republican Public Service Commission has said that locking in prices for shorter terms is necessary to protect NorthWestern customers from paying higher than average market prices — this after four years ago locking customers into a 30-year contract price for NorthWestern hydroelectric power, which at $58 per megawatt hour has proven to be more than double market price. That high price stems from NorthWestern's $870 million purchase of 11 dams from PPL Montana.
“The claims made in the lawsuit lack merit," said PSC spokesman Chris Puryear, in an email. "These lawsuits are about developers of power plants seeking to shift ordinary business risk to a captive set of customers."
At least one commissioner seemed to understand that the PSC's shortening contracts and lowering rates would likely thwart future small solar projects. In a conversation recorded by a hot mic, Commissioner Bob Lake acknowledged to PSC staff that cuts made that morning to rates and contracts offered to small renewable energy projects were deep enough to kill future development. The contracts were later extended five additional years.
In August, reacting to the newly-prescribed shorter contracts, NorthWestern appealed to state legislators for intervention. The utility said the PSC commissioners "had lost their regulatory minds" and that financial analysts were advising investors to reduce their NorthWestern holdings, possibly selling all stock in the the company. At the time, the PSC had proposed cutting contracts to 10 years, with prices only guaranteed for the first five.
NorthWestern's concern centered on the contract lengths for its own energy projects, which are much larger than those at the heart of Thursday's lawsuit.
Thursday's lawsuit calls on the PSC to comply with Federal and state law requiring the commissioners to set a price and contract lengths that support alternative energy resources under the Public Utility Regulatory Policies Act. It’s something federal law has required states to do for 49 years. Utilities are supposed to be obligated to buy power from qualifying facilities under the state’s terms.
That obligation was suspended by the PSC in June 2016 at NorthWestern's request. The utility complained that it was overrun by small solar projects seeking to capitalize on the state's guaranteed rate of $66 a megawatt hour.
After the PSC suspended NorthWestern's obligation to work with the small solar developers, the number of small solar projects crashed from 100 to fewer than a dozen.
Solar developers appealed to the Federal Energy Regulatory Commission, which ruled that the PSC had essentially allowed NorthWestern to dictate its own terms when it came to power purchase agreements, or PPAs, with small, qualifying facilites, or "QFs" for short.
"We find that, just as requiring a QF to have a utility-executed contract, such as a PPA, in order to have a legally enforceable obligation is inconsistent with PURPA and our regulations, requiring a QF to tender an executed interconnection agreement is equally inconsistent with PURPA and our regulations," FERC concluded. "Such a requirement allows the utility to control whether and when a legally enforceable obligation exists – e.g., by delaying the facilities study or by delaying the tendering by the utility to the QF of an executable interconnection agreement. Thus, the Montana Commission’s legally enforceable obligation standard is inconsistent with PURPA and our regulations under PURPA."
Federal regulators stopped short of going to court to force the PSC comply with PURPA law, but suggested that the solar company could bring its own lawsuit to district court.
After a year of wrangling with the PSC, Cypress Creek took FERC's advice and filed suit, asking Cascade County District Court to set PSC's decision aside for being "arbitrary, unreasonable and unlawful."