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To Protect Ratepayers, Montana PSC Mandates NorthWestern Energy to Negotiate Solar Contracts

June 21, 2016 By Cheryl Kaften

In a “ratepayer rescue effort,” the Montana Public Service Commission (PSC) voted 3-2 on June 16 (Docket No. D2016.5.39) to temporarily suspend the qualifying facility (QF) standard rate available to new small solar projects – requiring NorthWestern Energy instead to negotiate contracts with any proposed solar facilities of 100 kilowatts (kW) to 3 megawatts (MW) in size.

“Our action today to protect NorthWestern Energy’s customers from unreasonably priced solar power is a compromise that still allows solar energy development to continue across the state,” said PSC Chairman Brad Johnson.

Last month, on May 17, NorthWestern Energy had submitted an “emergency motion” to the commission, asking for the suspension of the current QF-1 standard rate available to solar projects of 100 kilowatts to 3 megawatts in size, citing a deluge of proposed projects that could generate significant additional costs for their customers.

At that time, the utility plead, “The commission has a legal obligation to ensure that rates paid to QFs by NorthWestern are just and reasonable to NorthWestern’s customers and do not exceed NorthWestern’s avoided cost. Current QF-I rates do not meet these standards. Each 3 MW of solar QF contracted at current QF-I rates will cost NorthWestern’s customers approximately $5.1 million more than NorthWestern’s currently calculated avoided cost.”

Indeed, NorthWestern submitted testimony to the PSC estimating that anticipated small solar projects could create over $215 million in additional costs to their customers over the next 25 years, if the PSC didn’t suspended the current rate of $66 per megawatt hour (mWh).

The Montana Consumer Counsel agreed with NorthWestern’s concerns about consumer impact, stating in comments submitted to the commission, “The long-term risk of harm to customers justifies granting the relief requested by NorthWestern.

Speaking to the Commission’s decision, Commissioner Roger Koopman said, “I totally agree with the Montana Consumer Council, that the Commission needed to take swift and decisive action in defense of ratepayers. These outdated standard rates are so inflated that consumers are taking huge hit. Meanwhile, out-of-state solar developers are flooding into Montana, anxious to capture the windfall profits created by an ill-conceived federal program (PURPA) that the PSC is required to enforce. Today’s action was a ratepayer rescue effort by the majority that at least plugs the hole in the dike while we go about setting new, more accurate rates”

“I’m excited to see growth of solar energy across Montana, but the Consumer Counsel presented a very compelling argument regarding the negative effect that the current, inflated rate has on consumers, and we could not let that happen,” said Commissioner Bob Lake, adding, “All solar projects that have signed both contracts and interconnection agreements with NorthWestern Energy prior to the commission’s action today will be allowed in at the current rate of $66 per MWh. All other projects will have the ability to negotiate a contract price with NorthWestern Energy. The Commission stands ready to resolve matters on which QFs and NorthWestern are unable to mutually agree.”

Commission Vice-Chairman Travis Kavulla dissented, saying, “These smaller projects should have the opportunity to obtain contracts at rates that represent the best estimate of what a utility itself would have to spend to supply itself energy and capacity. Rather than updating our rate, the commission has thrown out the availability of those rates entirely. Even if this were a good idea, I do not believe this approach is lawful.”

Also dissenting, Commissioner Kirk Bushman, commented, “NorthWestern Energy’s customers are completely exposed to extremely inflated prices from all QFs, not just solar. Anything short of suspending the full QF tariff is a failure on behalf of the commission.”

The Commission’s temporary suspension of the QF-1 rate for solar projects will remain in effect until a new rate is established about six months from now.

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