Judge strikes pre-approval statute that bestowed ‘exclusive and lucrative financial benefit only on NorthWestern’

A Missoula judge has struck down a law that granted NorthWestern Energy the ability to secure reimbursement for new energy-generating assets from its customers. In a 17-page May 6 opinion, Missoula County District Court Judge Jason Marks deemed the so-called pre-approval statute unconstitutional because it applies only to NorthWestern Energy. 

The law at issue, first passed by lawmakers in 2003 and amended in 2007, allows public utility companies to petition the Public Service Commission, which regulates utility companies in Montana, for approval to pursue new energy-generation projects before buying or building them. Opponents of the pre-approval statute have argued that it insulates utilities from the financial repercussions of bad business decisions by keeping captive ratepayers on the hook for costly investments, even if they’re ill-advised. 

In an emailed statement, NorthWestern Energy described the statute as a measure that was “wisely put into place” by Montana lawmakers trying to rectify “the calamity caused by deregulation” of Montana’s power industry in the late 1990s.

The plaintiffs, three Missoula residents and climate advocacy group 350 Montana, argued that the pre-approval statute runs afoul of the “special act” provision of the Montana Constitution, which prohibits the Legislature from passing a “special or local act when a general act is, or can be made, applicable.”

Marks said the “Electric Utility-Industry Generation Reintegration Act” includes clauses that benefit only NorthWestern Energy, even though all public utilities stand to benefit from access to pre-approval. 

The 2007 law conferred “exclusive and lucrative financial benefit only on NorthWestern Energy,” Marks said, adding, “there is no legitimate legislative purpose to financially favor only one corporate owner of a public utility.” 

“It is the role of the legislature, not this Court, to determine if all public utilities should have the benefit of the pre-approval process or if, as Plaintiffs clearly believe, pre-approval is bad policy and no public utility should have the benefit of pre-approval,” Marks continued.

Monica Tranel, a U.S. House candidate who works on energy and public utility issues with her Missoula law practice, said she’s “heartened” by the ruling in favor of her plaintiffs. 

“I think it’s reassuring to see that in these troubled times, you can still get the right outcomes and challenge bad law,” Tranel said. “Progress is still possible.”

Tranel said Friday’s development might temper NorthWestern’s appetite for building large, expensive natural gas plants or pursuing additional ownership of the Colstrip power plant.

The issue came into sharp focus last May when NorthWestern announced plans to build a $286 million natural gas plant in Laurel. Later that month, 350 Montana and Missoula residents Eric Huseth, Abigail Huseth and Jerome Walker filed a lawsuit challenging the pre-approval statute.

NorthWestern started the process for gaining pre-approval shortly after announcing its plans to build the plant, but decided to forge ahead without pre-approval in September, citing rising labor and material costs and the need to act quickly in order to maintain favorable terms it had already negotiated with contractors. 

In oral arguments before Marks on March 23, Tranel argued that the statute amounts to a “blank check” that rewards the company’s investment in expensive projects. 

“The utility has an incentive to bring in large, expensive plants because their profit is multiplied by the dollar value of the plant,” Tranel argued. “The bigger the kingdom, the bigger the king.”

Ben Alke, an attorney representing NorthWestern Energy, argued that pre-approval has “nothing to do with profit for NorthWestern” and that the statute in question applies only to NorthWestern because it happened to be the sole utility company in the state serving Montana consumers that needed energy-generating resources.

The PSC and the state of Montana were also defendants in the lawsuit. Representing the PSC, Assistant Attorney General Timothy Longfield argued that lawmakers had appropriately drafted the legislation for NorthWestern, and said NorthWestern’s ability to secure funding for capital-intensive investments is strengthened by a regulatory body’s pre-approval of the project.

A spokesperson from the PSC said in an email that the commission is reviewing the order and has no comment at this time.

In an emailed statement about the ruling, NorthWestern Energy spokesperson Jo Dee Black said the company is “extremely disappointed” by the decision.

“It undercuts a key mechanism for creating reliable and affordable electricity for Montanans,” Black said, adding that preapproval allowed NorthWestern to acquire “diverse generation resources including thermal generation, 11 hydroelectric facilities and wind resources.”

Black also said the decision “could terminate a 50 megawatt carbon-free battery storage project in Montana, technology that is intended to help lessen the reliance on thermal generation and lower the carbon levels of NorthWestern Energy’s Montana portfolio.” That battery storage project is the Beartooth Battery Storage Project, the state’s first utility-scale battery.

“NorthWestern will almost certainly appeal this decision,” Black added.