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Judge: Preapproval for NorthWestern Energy projects is unconstitutional

A 2007 Legislative decision to allow NorthWestern Energy to get preapproval from the state to build new energy projects violated the Montana constitution, according to a Missoula judge.

On May 6, Missoula County Judge Jason Marks signed his order finding that a Montana law allowing NorthWestern Energy to get Public Service Commission pre-approval to build projects such as the proposed natural gas plant in Laurel was unconstitutional because it gave special privileges to one company.

In 2007, the Montana Legislature passed a bill giving NorthWestern Energy the ability to get pre-approval for new energy projects, mainly because NorthWestern Energy had bought what remained of Montana Power after deregulation in 1997.

In an effort to stay afloat, Montana Power had sold its hydroelectric dams to Pacific Power and Light so all that remained were its transmission infrastructure. NorthWestern Energy needed to be able to generate power to be viable.

However, three other utilities were providing power in Montana, but the 2007 bill did not give them the ability to get pre-approval for projects.

In May 2021, Missoula-based 350 Montana and Missoula residents Eric and Abigail Huseth and Jerome Walker filed their lawsuit primarily in response to NorthWestern Energy’s request for PSC pre-approval to build a natural gas plant in Laurel. NorthWestern has since withdrawn that application.

However, 350 Montana attorney Monica Tranel said the company has used its pre-approval right for several construction projects at a cost to Montana customers.

During a March 23 hearing, Tranel emphasized that NorthWestern was able to go from the verge of bankruptcy to having a $3 billion market cap, partly due to $1.5 billion in guaranteed assets that Montanans paid for.

Assistant Attorney General Timothy Longfield, arguing during the hearing for the PSC, said NorthWestern Energy couldn’t have recovered without the pre-approval guarantee.

“These are capital-intensive investments, and investors are going to perceive an investment in NorthWestern’s acquisition of one of these assets as much less risky if NorthWestern has pre-approval from a development regulatory entity,” Longfield said.

In his order, Marks found the preapproval law violated two sections of the constitution, one saying laws couldn’t grant irrevocable special privileges to businesses, and the other saying special acts can’t be passed if a general act would work.

Marks said pre-approval was a special privilege in two ways: Only NorthWestern could apply and only NorthWestern could get pre-approval.

“The pre-approval process offers NorthWestern alone the substantial financial benefit of rate basing its acquisition of an energy supply resource before or at the time the resources is acquired,” Marks wrote.

It doesn’t matter that the law gave the PSC the ability to approve or deny pre-approval, Marks said. Under the law, no other utilities could even try. While Elke argued that no other utility would apply because none had the wherewithal, Marks said that wasn’t the point.

“The world of regulated public utilities in Montana is not static. Utilities or parts of them are sold or transferred, and managements and operating philosophies change over time, as in any corporate environment,” Marks wrote. “It is reasonable to contemplate a public utility other than NorthWestern seeking pre-approval for acquisition of an electricity supply resource.”

The law was also written to be irrevocable. NorthWestern was to have the privilege forever, and the PSC could never reverse its decision to approve the cost of a plant. The only thing the PSC could do was reject subsequent costs once the plant was built.

Marks points to other legislation to prove that the 2003 pre-approval act is a special act. The 2007 Electric Utility Industry Generation Reintegration Act allowed companies to own both power generating and transmission assets. It applied to all electric utilities and their successors, making it a general act. However, one section – the one that granted pre-approval – applied only to NorthWestern Energy, making it a “special act.”

“There is no compelling government interest to grant the irrevocable special privilege of preapproval to NorthWestern,” Marks wrote.

On a final note, if Marks found the law to be unconstitutional, NorthWestern Energy asked him to merely strike the part of the law that limited it to NorthWestern Energy and open it to all energy utilities. To do that, the law still had to make sense once the language was gone.

Marks refuse to sever or strike the language because the Legislature had only NorthWestern Energy in mind when it wrote the preapproval law. If the language was removed, the intent of the Legislature would be removed, Marks said.

“At its core, amendment of section 421 is a political question for the legislature. 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 Plaintiff’s clearly believe, pre-approval is bad policy and no public utility should have the benefit of pre-approval,” Marks wrote.

NorthWestern Energy has said it would likely appeal Marks’ ruling to the Montana Supreme Court. 350 Montana could not be reached for comment.

Contact reporter Laura Lundquist at lundquist@missoulacurrent.com.