UPDATE: Aug. 25, 2020: The Montana Supreme Court on Monday upheld the lower court's decision that found the state's Public Service Commission disadvantaged small solar projects.

"[T]he District Court did not err in concluding that the PSC's calculation of the avoided-cost rate was arbitrary and unlawful. The District Court also did not err in concluding that the PSC arbitrarily and unreasonably calculated QF 'capacity contribution' values and arbitrarily and unreasonably reduced maximum-length [qualifying facility] contracts to 15 years," Chief Justice Mike McGrath wrote in the majority opinion.

The Court also upheld its stay on the District Court's decision issued last August, ultimately remanding the case to state regulators to consider guidance provided in the opinion when setting rates and contract lengths for qualifying facilities "in all future regulatory proceedings."

Dive Brief:

A Montana district court judge last week issued an order in favor of solar developers, ruling that the state's Public Service Commission intentionally disadvantaged small solar projects in violation of the Public Utility Regulatory Policies Act (PURPA).

The ruling comes after a June 2017 audio recording captured Commissioner Bob Lake acknowledging that cuts to compensation rates the commission had approved that morning were likely deep enough to kill small solar projects. After the recording was released, a number of solar developers in the state filed suit against NorthWestern and the PSC.

The PSC cut the rates utilities have to pay solar producers under PURPA by 40%, from $66/MWh to $31/MWh, and cut contracts from 25 to 15 years. District Judge James Manley's order gives the PSC 20 days to come up with new compensation rates and restore contracts to 25 years.

Dive Insight:

The judge's ruling last week is a win for solar developers after a long fight between the state's dominant utility, NorthWestern Energy, and independent developers over the prices paid to renewable energy projects under PURPA in the state.

"This decision is an important step in beating back NorthWestern's ongoing attempts to kill competition from clean and affordable renewables," Earthjustice attorney Jenny Harbine, who represented the solar developers, said in a statement.

Vote Solar, Montana Environmental Information Center and Cypress Creek Renewables filed the lawsuit in 2017 against the PSC and NorthWestern.

"The Commission's decision is a death knell for small solar development in Montana 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," the lawsuit said.

Developers filed the suit after local media released a tape the day after the PSC's ruling in which Commissioner Lake admitted to PSC staff that the rates would effectively kill small projects.

"The 20 year might do it if the price doesn't, and honestly at this low price I can't imagine anyone going to get into it, so it becomes a totally moot point because just dropping the rate that much probably took care of the whole thing," said Lake.

Contentions between third party solar developers and NorthWestern were ongoing at the time, and the PSC had previously issued orders in favor of the utility.

The $66/MWh rate was set in 2012, but in June 2016, regulators surprised solar developers by issuing an emergency order to put those payments on hold after pressure from NorthWestern. There were 97 solar applications submitted at the time of the order, which the utility said were higher priced than renewable generation it could procure on the open market, outside the provisions of PURPA.

In December 2016, the Federal Energy Regulatory Committee rejected the PSC's decision, saying the action was inconsistent with the terms of PURPA.

The judge last week also ruled that the PSC could not constrain NorthWestern to the same contract lengths as third party developers, a small victory for the utility which now has more flexibility in its pricing agreements. The utility has not yet decided if it will appeal the case, according to the Montana Billings Gazette.